Mounting financial woes drive Consumer Reports trouble tracker levels to new high

Posted Thursday, October 29, 2009

 E-mail this page    Printer-friendly page

Consumers show little interest in buying early for upcoming holiday shopping season

Yonkers, NY — Despite talk that the economy is stabilizing, consumer sentiment levels remain low (40.3) growing slightly from September, as Americans report more financial difficulties, according to the latest Consumer Reports Index Report.

The Consumer Reports Trouble Tracker Index is a calculated score that focuses on both the proportion of consumers that have faced difficulties and the number of negative events they have encountered. In October, the Trouble Tracker measured a sharp rise to 66.7 from 62.3 in September. This was the greatest increase in the metric since June.

While the percentage of Americans experiencing trouble dropped slightly from 38 percent to 36 percent, the average number of troubles jumped from 1.6 to 1.9 per household. The Trouble Tracker Index continues to trend upward month-over-month from the low of 48.5 in May to a new high October.

Lower-income households, earning less than $50,000 a year, have been disproportionately affected by the recession. In the past 30 days: 26 percent have been unable to afford medical bills or medications, 12 percent lost their job or were laid off, 12 percent lost or have reduced healthcare coverage and 18 percent missed a payment on a major bill other than a mortgage.

In October, Consumers in the Northeast appear to have a better financial outlook than other parts of the country. Sentiment (42.3) was up 5 points in the region, and the Stress Index (63.7) and Trouble Tracker Index (68.0) levels improved, while the Employment Index (48.9) remained stable. In contrast, families in the Western states indicated a more negative picture. Stress Index levels in the region were up 13.8 points to 80.4 while the Consumer Sentiment Index level dropped even lower to 32.8 from 39.2 in September.

“The economy is in a precarious balance between recovery and further decline. Without a substantial improvement in the consumer’s condition, it’s doubtful that a meaningful recovery will be mounted this calendar year,” said Ed Farrell, Director of the Consumer Reports National Research Center.

Despite the early efforts by some retailers to focus on the upcoming holiday season, consumers are showing very little intention of increasing their retail buying in the next 30 days. The Consumer Reports Retail Index (9.2) for purchase made in the past 30 days appears to have stabilized over the past three months. However, the Retail Outlook for October (7.6), remains virtually unchanged for the third month in a row.

The Consumer isn’t showing much more interest in buying retails goods in October than they have all summer. We may be seeing the recalibration of the American economy where spending less is the new norm, Farrell said.

The Consumer Reports Index report, available at www.ConsumerReports.org, is comprised of five key indices: the Sentiment Index, the Trouble Tracker Index, Stress Index, the Retail Index, and the Employment Index. Here are the key findings:

Consumer Reports Consumer Sentiment Index: 40.3

The Sentiment Index captures respondents’ attitudes regarding their financial situation, asking them if they are feeling better off 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.

• Since its recent highpoint of 48.5 in June the Consumer Reports Sentiment Index declined to 38.1 in September, on par with its lowest point (October 2008, 37.8). However, consumer sentiment may have bottomed out this month showing a slight up-tick to 40.3.

Consumer Reports Trouble Tracker Index: 66.7

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, penal 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 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.

• The Trouble Tracker Index has increased steadily since May ‘09 (48.5) and has reached its highest reading this month at 66.7. The Trouble Tracker is up 4.4 points from the prior month, which has been the greatest increase since July ‘09. The rise in the October Trouble Tracker Index was driven by increases in:
  • Consumer’s inability to afford medical bills or medications (15.1%)
  • The missed payment of major bills (not mortgage) (11.3%).
  • Lost job (7.7%), which was on par with the worse month to date (August ‘09) and up 2.1 percentage points from the prior month.

Consumer Reports Retail Index: Past 30-Day 9.2, Next 30-Day 7.6

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 & 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.

• The Past 30-Day Retail Index, which collapsed during the month of July, falling to 9.5, stabilized in August (9.7) and remained stable during September at 9.2. Similarly, the Next 30-Day Retail outlook stabilized for September (7.5) and remains virtually flat for planned activity in October (7.6). As the shoulder of the holiday shopping season approaches, the potential impact of early shoppers is not apparent and a healthy sign of recovery would see these indexes move upwards in the next two months as the holidays grow closer.
• Looking in detail at the categories comprising the Retail Index, purchasing in the past 30 days was up for major appliances, but down for major home electronics and personal electronics in this months report compared to last month.
• The Consumer Reports Retail Outlook (7.6), which reflects planned activity in October ‘09, was on par with planned activity for September ‘09 (7.5). When broken down into individual categories, planned purchasing of both personal electronics and major home electronics is up for October ‘09. Planned purchasing of personal electronics has reached its highest level since July ‘09 and major home electronics is at its highest level since May ‘09.
• Among retail categories not included in the Retail Index (new car, used car, and new home), past 30-day purchases of new cars eased back from 2.9% in August, which was fueled by the Cash for Clunkers program to a respectable 2.5% in September. Used car purchasing also pulled back in the most recent period to 4.8% from 5.2% in the prior month.
• The October Consumer Reports Retail Outlook, for large purchases looks mixed with new cars remaining on par with September and used cars falling substantially to 4.2% from 5.7% in the prior period. Those planning to buy a home remained relatively flat at 2.4%.

Consumer Reports Stress Index: 63.5

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).

• Understandably, the level of stress consumers feel is up from a year ago. Since June ‘09 (57.0), the amount of stress consumers are reporting has steadily increased through September (65.7) and held steady in this month at an elevated level of 63.5.

Consumer Reports Employment Index: 48.5

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.

• The Employment Index, looking at the past 30 days, declined markedly to (48.5) from its recent high in September (50.3). The drop was the result of a spike (7.7%) in the proportion or Americans claiming to have lost their job during the month of September ‘09.

For more information regarding the Consumer Reports Index visit www.ConsumerReports.org.The Consumer Reports Index, conducted by the Consumer Reports National Research Center is a monthly telephone poll of a nationally representative probability sample of telephone households. 1,000 interviews were completed among adults aged 18+. Interviewing took place between October 1 and October 4, 2009. The margin of error is +/- 3.2% points at a 95% confidence level. Complete index report, methodology, and tabular information available. Contact: C. Matt Fields, 914-37..., cfields@consumer.org

Consumer Reports has no commercial relationship with any advertiser or sponsor appearing on this newspaper's web site.