US Financial Sentiment Dims

May 11, 2011

consumer-reports-index-may-2011.JPGThe Consumer Reports Sentiment Index has dropped to 45.7 in May 2011 from 50.2 the prior month, according to Consumer Reports. This significant step back returned consumer sentiment to negative territory, leaving it at a level comparable to one year ago (44.6).

Gas, Inflation Fuel Drop in Sentiment

Consumer Reports analysis indicates rising gas prices, inflation concerns and increasing financial woes all contributed to the decline in overall consumer financial sentiment. The most optimistic consumers are those age 18-34 at 54.8 (down from 61.2 the prior month), and households with income of $100,000 or more at 56.3 (down from 60.7 a month earlier).

Conversely, the most pessimistic consumers are those in households with income less than $50,000 at 41.2 (down slightly from 42.4 the prior month), and those age 65 and older at 36.3 (a decrease from 40.5 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.

Consumers Face More Troubles

Consumers faced greater troubles this month than last month. The Consumer Reports Trouble Tracker Index rose to 48.3 in May, from April’s 44.5. The Trouble Tracker Index is still down substantially from February’s recent high of 58.7. Increases were the result of a wide range of reported financial difficulties in the past 30 days. The sharpest increases compared to the prior month included: missed payment on a major bill–not mortgage (8.8%), up 42% from 6.2% points; and negative changes to credit-card terms–increased rate, penalty fees, etc. (6.3%), up 23.5% from 5.1%.

Overall, the most prevalent consumer trouble remains the inability to afford medical bills or medications, unchanged at 14.9% this month. And lower-income households earning less than $50,000 a year, have been disproportionately affected. In the past 30 days, 24.8% of these households are unable to afford medical bills or medications; 13.9% missed payment on a major bill (not a mortgage); and 12% lost or reduced health-care coverage.

The Consumer Reports Trouble Tracker Index 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.

North Central, Northeast Move in Opposite Directions

consumer-reports-trouble-may-2011.JPGLooking at consumer troubles regionally, consumers in the North Central US saw their troubles increase dramatically compared to April (17%), while troubles for consumers in the Northeast declined by the same percentage. Troubles experienced by consumers in the West and Southeast rose mildly compared to the prior month.

Consumers Spend Less

consumer-reports-retail-may-2011.JPGThe Consumer Reports Past 30-Day Retail Index, reflecting April activity, is 11.7, down from 12.6 the prior month. The Consumer Reports Next 30-Day Retail Index, reflecting planned purchasing in May, is also down, standing at 8.2 compared to 9.4 the prior month and 9 one year ago.

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), May’s losses were the result of declines in personal electronics (23.2%), down 11% from 26.2% the prior month; major home electronics (13.6%), down 12% from 15.4% a month earlier; and, major appliances (8.1%), down 7% from 8.7% in March.

The Consumer Reports Next 30-Day Retail Index for May, reflecting May’s activity, is 8.2. Compared to the prior month, losses were the result of a decline in planned purchasing during the next 30 days for personal electronics (14.1%), down 25% from 18.8%; and, major appliances (4.8%), down 33% from 7.2%.

Among the non-index categories, past 30-day purchases, reflecting April activity, were down compared to the prior month for new cars (1.8% compared to 3%) and used cars (3.9% compared to 5.3%), while home purchasing was virtually unchanged (1.9% compared to 2.1%). Planned purchasing during the next 30 days, reflecting May activity across these categories, shows a slight rebound versus the prior month for new cars (2.4% compared to 1.1%), and an increase in planned home purchasing (2.2% compared to 1.1%), while used cars are virtually unchanged (4% compared to 4.3%).

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

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