The average American household is slipping deeper into financial distress, according to the latest Consumer Distress Index report by CredAbility, a credit counseling agency.
According to the report, the average U.S. consumer has been in financial distress for nine consecutive quarters. For the quarter ended September 30, 2010, American households scored a 64.4 on the distress index, down from 65.2 in the second quarter of 2010. A score below 70 indicates financial distress.
The average consumer in all but six states scored above 70 on the index's 100-point scale, and 41 states saw their index scores drop in the third quarter, indicating that the level of financial distress in those states is increasing. The index is calculated using statistics covering employment, housing, credit, household budgets and net worth.
"To see the index drop in 41 of 50 states tells you just how fragile this recovery is, especially since 70% of our economy is dependent upon consumer spending and consumer health," said Mark Cole, CredAbility's chief operating officer who manages the index.
Some Improvements, but Unemployment Still Holds Sway
Cole said the drop in the index scores is particularly disappointing because there had been signs that things were getting better for consumers in the first half of the year. He said there is evidence that consumers are continuing to clean up their balance sheets, mortgage delinquencies are stabilizing and credit scores are improving. Consumers have also begun spending again using cash, not credit.
"Unfortunately, the vast majority of Americans remain in financial distress," Cole said. "Unemployment and housing remain stubbornly weak and until this improves, the American consumer will likely continue to experience financial anguish."
Michigan (58.11) was the state with the lowest score and thus the highest financial distress, followed by Mississippi (58.76) South Carolina (60.10), Alabama (60.23) and Indiana (60.68). High unemployment and housing-related problems like delinquent mortgage and rental payments hurt their overall scores. The six states with scores above the financial distress level were North Dakota (79.45), South Dakota (76.19), Nebraska (74.87), New Hampshire (72.77), Wyoming (72.54) and Vermont (70.88).
Cole said that although it appears consumers slipped a bit in the third quarter, there is hope that the positive movement from the first half of the year will return soon.
"Consumers are acting in more responsible ways and that's going to bode well for us over the long term," he said. "If we can find solutions that can get people back to work and sort our way out of this mortgage mess, then the behaviors that consumers are exhibiting now will bode well for a long-term sustainable recovery."