Economic Recovery Fails to Ease Financial Stress on U.S. Households

A rise in stock prices has helped to grow consumers' net worth, but financial duress related to housing and a weak job market are weighing heavy on U.S. households and overshadowing any assurances that an economic recovery is underway.
[IMAGE] The nonprofit credit counseling agency ""CredAbility"":http://www.credability.org has released its ""Consumer Distress Index"":http://www.credability.org/ConsumerDistressIndex results for the fourth quarter of 2010. The index measures the financial condition of the average U.S. household.

The agency says the health of household budgets declined each quarter in 2010, falling to its lowest level in the last three-month period since the first quarter of 2009.

""Improved stock prices have increased the value of 401(k) and other investment accounts in the average U.S. household, but high unemployment continues to stifle income growth, causing many homeowners to miss mortgage payments,"" said Mark Cole, COO of the Atlanta-based counseling agency.

“While an increase in consumer spending helped the economy in the fourth quarter, the index showed that an increasing number of people failed to prudently manage their household budgets,” Cole said. “This lack of savings could cause financial problems if they need to rely on their savings in the future.”

For the quarter ended December 31, 2010, American households scored a 64.3 on CredAbility’s 100-point index scale, down slightly from 64.4 in the third quarter of 2010. A score below 70 indicates a state of financial distress.

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For all of 2010, the index showed a small improvement, moving up from a score of 63.9 in 2009’s fourth quarter, but CredAbility says the average U.S. consumer has been in financial distress for 10 consecutive quarters. The last time the agency’s index came in above the 70-point distress threshold was in the second quarter of 2008.

Based on the agency’s latest study, seven states, led by North Dakota (79.35) and South Dakota (76.94), scored above the 70 mark in Q4 2010. Others were Nebraska (74.84), Wyoming (74.09), New Hampshire (72.3), Vermont (71.3), and Iowa (70.05).

Seven more states and the District of Columbia are within two points of moving out of financial distress. These states are Massachusetts, Minnesota, Montana, Virginia, Utah, Connecticut, and Colorado.

For the second straight quarter, Michigan posted the worst index score with a 58.83. Other states ranking among the 10 most financially distressed include: Mississippi (59.24), Nevada (59.27), Alabama (60.03), Florida (60.21), South Carolina (60.56), Indiana (61.16), Georgia (61.26), North Carolina (61.38), and California (61.39).

CredAbility points out that these 10 states account for nearly 33 percent of the nation’s Gross Domestic Product (GDP). While U.S. GDP increased 3.2 percent in 2010’s fourth quarter, the CredAbility Consumer Distress Index indicates that the boost in economic activity has not yet reached the average consumer.

Based on the index’s data, Cole says a tale of two different American families is developing. “The family with one or two stable jobs is seeing their investments grow again and is beginning to spend more of their household income,” he said. “But families that have lost a job or seen other income sources reduced, and who don’t have enough income to invest, have experienced increased financial distress.”

Cole added, “Unfortunately, millions of families are in the second category. In 2010, approximately 14.8 million people ended the year unemployed [and] more than 1 million families lost homes to foreclosure.”