As Global Economic Outlook Dims, U.S. Consumers Shoring Up FinancesWednesday, August 17, 2011

Americans Remain in Financial Distress, But Index Rises as More Households Pay Their Bills on Time and Live Within Their Means

ATLANTA, GA – As U.S. leaders face the challenges of high unemployment, rising debt and concerns that the economic recovery has stalled, American consumers have been shoring up their household finances. In the second quarter of 2011, the financial picture for U.S. households continued to improve as delinquency rates on mortgages, rental housing and credit card payments continued to drop. Consumers’ ability to make their debt payments on time, and make progress in getting their expenses in line with income, also helped offset an increase in the nation’s unemployment rate during the quarter.

These are among the key findings of the latest CredAbility Consumer Distress Index, which is published by CredAbility, one of the nation’s leading nonprofit credit counseling and education agencies. The quarterly index tracks the financial condition of the average U.S. household by measuring five categories: employment, housing, credit, how families manage household budgets and net worth. A score below 70 indicates a state of financial distress.

U.S. households scored 69.20 on the Index’s 100-point scale, up from 68.15 in the first quarter of 2011. While the nation remains in financial distress – scoring under 70 for the 11th consecutive quarter – the average household continues to make progress. The score has risen for three consecutive quarters and for four out of the past five quarters. Since the Index’s low point in the third quarter of 2009, the score has increase by approximately five points.

“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,” said Mark Cole, executive vice president of CredAbility and author of the index. “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.”

The Index’s employment category fell more than one point to 54.39. During the quarter, the U.S. Department of Labor reported that the nation’s unemployment rate jumped from 8.8 percent to 9.1 percent and that 530,000 fewer persons had full-time jobs.

The index also measures the financial distress level of all 50 states and the District of Columbia. Among individual states, Nevada had the lowest score at 61.6, followed by Michigan, Mississippi, Alabama and Georgia. Twenty-eight states and the District of Columbia had scores higher than 70 and six states moved out of financial distress by scoring higher than 70 compared to last quarter – Maine, Washington, New Jersey, Delaware, Utah and New Mexico. To see a detailed explanation of how the Index works and a national map, go to www.CredAbility.org/ConsumerDistressIndex.

National highlights for the second quarter include:

• The score for the Credit category was 82.94, the highest score in more than four years. A lower percentage of U.S. households were delinquent on their credit card payments and other consumer loans during the quarter, and the average credit score increased. Consumer loans taken out in the past three years are performing well and bankruptcy filings are down compared to previous years.
• The Household Budget category dropped by almost three points to 74.22. The amount of funds in the average U.S. households’ emergency savings stayed the same, but there was also less money available for discretionary spending and savings once all bills were paid. This trend likely reflects the impact of higher gasoline and grocery prices during the past year while real wages have been flat on an after-tax basis. These higher expenses and lack of wage growth are also weighing on consumers’ confidence about their ability to spend more in the future.
• The Net Worth category rose slightly to 64.72. US households across the nation continued to make minor improvements in their personal balance sheets. Net worth is critical to long term financial stability and this score reflects the challenges that average households will face as they approach retirement. One recent survey showed that only 54 percent of adults 65 and older are confident that they are prepared for retirement.

State highlights for the second quarter include:

• California, the nation’s most populous state, raised its score for the seventh consecutive quarter to 66.64. The state now ranks 10th among the most distressed states, though it continues to rank among the top healthiest 10 states in the Net Worth category.
• Only four states – Alabama, Mississippi, Louisiana and North Dakota -- had lower scores in 2011’s second quarter compared to the previous quarter. In Alabama, the number of people using food stamps doubled to 1.7 million in May following severe storms and tornadoes.
• North Dakota and South Dakota continue to have the highest scores among individual states, scoring 82 and 81.29, respectively.

2011 Second quarter Index data by state:

About the CredAbility Consumer Distress Index

Published quarterly, the CredAbility Consumer Distress Index uses a proprietary methodology that draws upon multiple data sets. Employment, housing, credit, household budget and net worth information is supplemented with data collected by CredAbility, which serves more than 630,000 financially distressed individuals each year.