US Consumers Show Significant Economic Improvement

March 9, 2011

consumer-reports-index-march-2011.JPGDespite international unrest and escalating energy prices, the March 2011 Consumer Reports Index reveals its most positive results in two years. A major decline in consumer financial troubles and positive sentiment provide some encouraging news for US consumers.

Financial Sentiment Enters Positive Territory

The Consumer Sentiment Index has broken into positive territory at 50.3 and is up significantly from 48.7 a month ago. This is the first time sentiment has been in positive territory since it was first measured in October 2008. The most optimistic consumer are those age 18-34 at 57.4 (up from 55.5 the prior month), and households with income of $100,000 or more at 59.9 (down slightly from 61.5 a month earlier).

Meanwhile, the most pessimistic consumers are ouseholds with income less than $50,000 at 43.2 (down slightly from 44.2 the prior month), and those age 65 and older at 42.6 (up slightly from 41.9 a month earlier).

The Consumer Reports 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.

Consumer Troubles Recede

Consumers faced fewer troubles this month than last. The index fell sharply to 44.8 in March, from February’s 58.7. The Trouble Tracker Index is now at its lowest level since it was first released in April 2008.

Declines were evident for a wide range of reported financial difficulties in the past 30 days. The sharpest declines compared to the prior month included: Unable to afford medical bills or medications (11.4%), down 33% from 17%; lost or have reduced health care coverage (5.7%), down 39% from 9.3%; and missed payment on a major bill not including mortgage (8.3%), down 14% from 9.7%.

Lower-income households earning less than $50,000 a year, however, have been disproportionately affected by various types of fiscal difficulty. In the past 30 days, 16% were unable to afford medical bills or medications; 13% missed payment on a major bill (not a mortgage); and 10% faced negative changes to their credit card terms in increased interest rates, penalty fees, etc.

Though broad improvements were evident, the proportion missing a mortgage payment in the past 30 days has been on the rise during the past several months, and is now at 3.1% up more than 50% from 2% in December 2010.

The Consumer Reports Trouble Tracker focuses on both the proportion of consumers that have faced difficulties as well as the number of negative events they have encountered. The negative events include: the inability to pay medical bills or afford medication, missed mortgage payments, home foreclosure, interest-rate increase, penalty fees, reduced lines of credit or other changes in credit card terms, job loss or layoffs, reduced health-care coverage or the denial of personal loans. The Consumer Reports Trouble Tracker Index is then 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.

Midwest Sees Dramatic Reduction in Trouble

consumer-reports-index-trouble-tracker-march-2011.JPGLooking at Trouble Tracker Index data regionally, the Midwest had a substantially larger drop in its incidence of financial troubles (down 21.6%) than other regions of the US. The Southeast had the next best performance (down 12.5%), with the West (11.6%) and Northeast (11.5%) following.

Retail Spending Down Slightly

consumer-reports-index-highlights-march-2011.JPGThe Consumer Reports Past 30-Day Retail Index for March 2011, reflecting February 2011 activity, is 10.5, down slightly from both the prior month (11.6), as well as a year ago (11.1). The Next 30-Day Retail index, reflecting planned purchasing in March 2011, is also down, standing at 7.6 versus 8.3 the prior month, though it remains about even with one year ago (7.3).

Looking in detail at the categories comprising the Past 30-Day Retail Index (major appliances, small appliances, major home electronics, personal electronics, major yard/garden equipment), all categories but one were flat or down slightly, with major yard/garden equipment posting an increase.

Among the non-index categories, past 30-day purchases, reflecting February 2011 activity, are down versus a year ago for both new cars (1.5%, more than 50% from 3.3%) and used cars (3.3%, 43% from 5.8%), while home purchasing (1.5%) was unchanged.
Planned purchasing in March 2011 is up compared to one year ago for both new cars (1.9%, up 72% from 1.1%) and used cars (5.1%, up 46% from 3.5%), while homes is down 40% (0.9% compared to1.5%).

The Consumer Reports Retail Index looks at consumer purchases in the past 30 days as well as the outlook for planned purchases in the next 30 days across several categories. The Consumer Reports Retail Index represents the proportion of respondents that made a purchase in the following categories: major home appliances, small home appliances, major home electronics, personal electronics, and major yard and garden equipment. The Retail Index is a weighted calculation. For example, a major appliance is of greater value than a small appliance. Because of their size and frequency, car and home purchases are tracked separately.

Gallup: Spending Up Slightly in Feb.

Overall self-reported daily US consumer spending in stores, restaurants, gas stations, and online averaged $61 per day in February 2010, according to results of a recent Gallup poll. That is up slightly from $58 in January and $59 in February 2010, but still in the 2009-2010 “new normal” spending range and 42% below the $106 average of February 2008.

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