Consumer distress

The average U.S. consumer remains in “financial distress” despite a “significant pullback” in household spending, according to a new report from the Atlanta-based CredAbility Consumer Distress Index.

The new quarterly measure that tracks shifts in the financial condition of the average American household, and uses a proprietary methodology that draws upon multiple data sets — Employment, housing, credit, household budget and net worth information.

The new index is based on a 100-point scale where a level of 70 or below indicates consumer financial distress. Financial distress is defined as the condition where an individual or household is financially unstable and needs to take immediate action to address their problems.

For the quarter ending March 2010, American households’ scored a 64.2 on the 100-point scale, marking the seventh consecutive quarter of financial distress for the average American. However, the index improved slightly compared to the previous quarter score of 63.9 — the lowest score since 2006, the first year that the index covers.

OTHER INDEX RESULTS
• American households had their highest score, 78.7, in March 2007. Since that time, the index has dropped more than 14 points, led by rising mortgage delinquencies and foreclosures, and increased unemployment and under-employment.

• The index dipped below 70 — entering a state of financial distress — in September 2008. The index has lingered in the mid-60s for the past six quarters.

• The small improvement in 2010’s first quarter is only the third time there has been an improvement compared to the previous quarter since 2006. The increase is due largely to reduced household spending.

• “On the positive side, we see a stabilizing of the Index score over the last two quarters. That reflects both strengthening household budgets and an improving employment market."