Consumer Economic Difficulties Persist

April 15, 2010

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Consumers are experiencing increased economic difficulties even as the employment picture improves, according to the April 2010 Consumer Reports Index.

Employment Index Enters Positive Territory
The Employment Index, which examines the change in employment of those that reported starting a new job, compared to those that have lost their job or were laid off in the past 30 days, entered positive territory for the first time since May 2009. The Employment Index now stands at 50.4 (with a score more than 50 representing positive job growth), compared to 48.7 in both March and February 2010. In the past 30 days, 5% of Americans reported losing their job, compared to 4.3% in March 2010.

The 5% reporting starting a new job is up from 3.5% the prior month, but behind the recent high point in September 2009 (6.2%).

The official March 2010 Employment Situation Summary roughly corroborates the findings of the Employment Index. According to the Bureau of Labor Statistics, the U.S. unemployment rate stayed flat at 9.7% for the third straight month, but the economy added a healthy 162,000 non-farm payroll jobs.

The Consumer Reports Employment Index examines the change in employment of those that reported starting a new job versus those that have lost their job or were laid off in the past 30 days. An index below 50 indicates more jobs were lost than gained, while a score more than 50 indicates more jobs were gained than lost in the past 30 days.

Consumers Have Troubles
Despite the employment gains, The Consumer Reports Trouble Tracker Index posted its largest ever monthly gain, pointing to more troubles for consumers. The Trouble Tracker Index rose to 63.5 in April 2010, up from 52.3 in March 2010, and was up substantially from April 2009 (55.4).

Compared to the prior month, the increase in the Trouble Tracker Index was driven by: missed payment on a major bill – not mortgage (12.5%) up four percentage points.; lost or reduced health-care coverage (9.3%) up three percentage points.; unable to afford medical bills or medications (16.6%) up 2.3 percentage points.; and negative changes to credit-card terms like interest rates, penalty fees, etc. (12.1%) up two percentage points.

Three of these components of the Trouble Tracker Index have reached their highest level since tracking began last April: unable to afford medical bills or medications, lost or have reduced healthcare coverage, and missed payment on a major bill (not mortgage).

The negative events followed by the Trouble Tracker include: the inability to pay medical bills or afford medication, missed mortgage payments, home foreclosure, interest rate increase, penalties fees, reduced lines of credit or other changes in credit card terms, job loss or layoffs, reduced healthcare coverage, or the denial of personal loans. The index is calculated as the proportion of consumers that have experienced at least one of the negative events comprising the index, multiplied by the average number of events encountered.

Spending Remains Sluggish
The Consumer Reports Past 30-Day Retail Index for April 2010, which reflects the purchases consumers made in March 2010, is at 10.4. This score is slightly down from 11.1 in March 2010 (representing February purchases) and 10.9 in February 2010, but flat compared to 10.4 in April 2009. This number stands firmly at pre-holiday levels, indicating that consumers are not currently engaging with the economy.

However, the Next 30-Day Retail Index, which reflects the purchases consumers plan to make in April 2010, is at 8.3, which up slightly from 7.3 the previous month and substantially better than 6.7 in April 2009. This indicates that confidence may gradually be emerging and real improvement in retail may materialize in the coming months.

The Conference Board Consumer Confidence Index also indicates consumers may start engaging more with the economy in the coming months. After sharply dropping in February 2010, the Consumer Confidence Index rebounded just as sharply in March 2010, rising from a revised score of 46.4 to 52.5.The Expectations Index, which measures consumers’ attitudes about the performance of the economy during the next six months, shot up from 62.9 to 70.2. More consumers expressed the opinion that business conditions, the labor market and wages will improve in the next six months.

Financial Sentiments Flatten
Following a slight decline in February 2010, the Consumer Sentiment Index, which measures financial optimism, edged up in March 2010 from 43.9 to 44.8, the highest point this year so far (January 2010’s score was 44.1).

consumer-reports-index-apr-2010.jpg

In April 2010, the Financial Sentiments Index essentially remained flat, dropping to 43.7. Sentiment is up from a year ago versus today, but the overall gain has been modest, 41.6 compared to 43.7, respectively. The most optimistic consumers are 18-34 years of age (54.4), followed by those with household income of $100,000 or more (51.9). The most pessimistic were households with an income of less than $50,000 (40.8) and Americans 65 or older (35.8).

The Sentiment Index captures respondents’ attitudes regarding their financial situation, asking them if they are feeling better or worse off than a year ago. When the index is greater than 50, more consumers are feeling positive about their situation. When it is below 50, more consumers are feeling worse. The Sentiment Index can vary from a high of 100 to a low of 0.

Consumers Feel More Stress
The Consumer Reports Stress Index rose from 57.7 in March 2010 to 63.8 in April 2010, on par with 63.8 in April 2009. The Stress Index had been dropping since reaching 63 reached in December 2009 as consumers were busy with holiday planning and shopping. This month’s increase reflects financial difficulties many consumers are facing.

The Consumer Reports Stress Index captures attitudes regarding the amount of stress consumers feel compared to a year ago. It asks whether they are feeling more stressed or less stressed. When the Stress Index is more than 50, consumers are feeling more stress and when it is below 50 they are feeling less stress compared to a year ago. The index can vary from 100 (Total Stress) to a low of 0 (No Stress).

About the Data: The Consumer Reports Index, conducted by the Consumer Reports National Research Center, is a monthly telephone and cell phone poll of a nationally representative probability sample of American adults. A total of 1,260 interviews were completed (1,010 households, 250 cell phones) among adults aged 18+. Interviewing took place between March 25 and March 28, 2010.

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