Household Budgeting Behind Confidence Boost in Consumer Distress Index

Household budgeting has become a priority for American consumers. While many families continue to struggle under the weight of the Great Recession, CredAbility‘s Consumer Distress Index offers some comforting news: the level of consumer distress is beginning to ease. The Index, which tracks the financial health of of the average U.S. household consumer on a quarterly basis, indicates that the Consumer Index score rose four points over the past five quarters, as a result of reduction in household debt and as consumer confidence has increased.

The Consumer Distress Index analyzes data from five key categories: employment, housing, credit, household budget management and net worth. Not surprisingly, one of these categories – housing – continues to deteriorate. Even so, U.S. households scored a 68.15 on the Index’s 100-point scale, up from 67.2 in the fourth quarter of 2010. This is the highest score since the financial crisis intensified in the third quarter of 2008.

The nation has scored under 70 for the 10th consecutive quarter, indicating financial distress which can likely be attributed to minimal improvements in mortgage delinquency rates and rising vacancy rates in apartments and other rental housing. The silver lining of this dark financial cloud is that the rise in Index score reflects an increase in full-time and part-time employment, as well as the smart use of credit and better household budget management.

Mark Cole, chief operating officer for CredAbility, and author of the CredAbilty Consumer Distress Index, notes that “the good news is that the full-time labor force grew by more than 540,000 people in the first quarter and consumers with stable incomes have a handle on their credit and household budgets. While the housing category continues to deteriorate, a gain of four points in the index during the past five quarters indicates that the majority of consumers are on the right track.”

National highlights from the first quarter include:

  • A score of 82 for the Credit category, the highest score since the second quarter of 2007. Credit scores were aided by fewer people filing for bankruptcy, and consumer bankruptcy filings dropped six percent nationwide from the same period in 2010.
  • Falling unemployment and underemployment. The score for the employment category jumped four points to 55.7 as the number of people working part-time due to lack of full-time opportunity fell by 500,000 to 8.4 million. That said, the employment score in the first quarter was in the top ten worst quarters over the past 30 years, according to the Index.
  • Americans have more money in their bank accounts after paying the bills. The household budget category rose two points to 77, with data showing that the average American is doing a better job of managing their spending plan. However, these same people may be affected negatively if gas prices continue to rise or even stabilize at their current rates. A survey of approximately 19,000 people who received budget counseling from CredAbility in the first quarter reported that each person spent $593 on gasoline during those three months, up 7.6 percent from the same period in 2010.
  • Increase in vacancy rates for rental housing. The housing category is the only one of the five that fell in the first quarter, dropping from 62.8 to 61.6. Vacancy rates for rental housing continued to increase in major states, including Georgia, Florida, Michigan and Texas. The good news? Mortgage delinquency rates fell slightly during the first quarter.

If you are wondering where your state ranks, CredAbility offers a state-by-state breakdown of first quarter data, as well as information from all four quarters of 2010.


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