We’re stressed, relatively pessimistic, and unsure about where the economy going into a Presidential election year.

Those are the unsurprising findings from the CredAbility Q2 Consumer Distress Index this week. The latest data reflects an average score of 69.20 on the index’s 100-point scale. Given that any number below 70 indicates financial distress, it is clear that even after a third consecutive quarter of gains, the average consumer is experiencing a crisis of confidence.

And it’s not hard to understand the root causes of our distress. The CredAbility Consumer Distress Index represents a composite of employment, housing, credit, household budget and net worth data that combine to offer a barometer of our financial health as well as household security.
Of these five elements, employment is dragging down the average. With a score of 54.4, employment qualifies for the index’s lowest “Emergency Crisis” rating in almost every state in the nation.

When asked how important job creation and a lowering of the unemployment rate are to getting the index above the 70 point distress threshold next quarter, Mark Cole, CredAbility’s Executive VP and Chief Operating Officer said, “It’s the single most important thing. If we’re going to see distress levels return to normal, we need jobs. If you don’t have stable employment, you’re not going to buy things, and even the lifestyle you’ve created is unsustainable when there’s been no wage growth for 20 years, accompanied by spikes in non-discretionary items like energy and food prices.”

Certainly the anemic housing market has failed to boost consumer sentiment, especially in a number of the top ten most distressed states like Nevada, Michigan and Arizona. Coming in at 69.7 nationally, the housing score according to Cole, is nearly inseparable from the unemployment crisis.

“If you don’t have a safe, stable income, what kind of housing can you have? Whether it’s the chicken or the egg, both numbers are bad. There’s steady progress but not nearly enough,” he explained.

Despite the gains of the last three quarters, Q2 of 2011 remains the 11th worst-reported quarter in the index’s 31-year history. Still, there is at least one positive trend emerging from the numbers that bodes well for an eventual climb out of distress. Where the first decade of this century was characterized by cheap and easy credit that allowed people to live beyond their means, this decade reflects a necessary household budget retrenchment that is serving to elevate that particular indicator.

“Many people have made the tough choices needed to live within their means. They are paying their bills on time and getting their expenses in line with their income. Unemployment and underemployment continue to cause hardships for millions of families and weigh heavily on the confidence of the nation. But a positive emerging trend is that families are handling their personal finances more wisely,” Cole noted.

While Cole hesitates to play fortune teller, noting that “in general, we didn’t design the stress index to be predictive,” it is very clear that without a real plan to put the unemployed back to work in stable industries, consumer confidence will continue to languish.

And that’s quite a quandary in an economy that has been driven by consumer spending for several decades.