Credit Crunch

Grip of Financial Distress Tightens Again in Third Quarter: Report

Posted on Friday, November 19, 2010

The overall financial health of consumers showed incremental improvements in the first half of 2010, but that progress was wiped out during a span of three months
due to weaker household budgets, renewed strains on housing costs, and high levels of unemployment, according to the nonprofit credit counseling agency CredAbility.
The Atlanta-based organization released the results of its third-quarter CredAbility Consumer Distress Index Wednesday, which tracks the financial condition of the average U.S. household.
For the quarter ended September 30, American households scored a 64.4 on the index’s 100-point scale, down from 65.2 in the second quarter and 65.0 in the first. A score below 70 indicates a state of financial distress.
The average U.S. consumer has been in financial distress for nine consecutive quarters, according to CredAbility’s calculations.
Index scores fell in 41 states during the July through September period, underscoring the depth and breadth of consumer financial distress that continues to grip the nation.
Two states scored below a 60 on the index scale, a threshold that indicates the average consumer there is in financial “crisis,” CredAbility says. Michigan (58.11) posted the worst score, followed by Mississippi (58.76). Not
far behind were South Carolina (60.10), Alabama (60.23), and Indiana (60.68).
According to CredAbility, each of these five states on the bottom on the index spectrum faces acute challenges in employment and housing markets, which weigh heavily on their overall scores.
Only six states, mainly in the Great Plains and New England, achieved scores above the distress threshold of 70 points. North Dakota (79.45) again had the best performance, then South Dakota (76.19), Nebraska (74.87), New Hampshire (72.77), Wyoming (72.54), and Vermont (70.88).
Alabama (60.23) and Louisiana (65.07), which were likely affected by the Deepwater Horizon Gulf oil spill, claimed more-distressed positions in the state rankings. Florida (60.81) and California (61.31), on the other hand, saw their positions improve, although CredAbility says both states are still among the most financially distressed in the country.
According to Mark Cole, CredAbility’s COO and executive responsible for the CredAbility Consumer Distress Index, one big change in the third-quarter data was the sharp increase in delinquent payments by renters, who comprise just under one-third of the U.S. housing population.
On a more positive note, the index shows consumers’ net worth remains stable and while the savings rate slipped slightly, consumers continued to pay down debt, indicating that an uptick in household spending in the third quarter was made with current funds instead of borrowed money.
“The third quarter was a mix of bad and good news,” Cole said. “Consumers continue to clean up their balance sheets, mortgage delinquencies appear to be stabilizing and credit scores remain reasonably good. Mortgage refinancing is putting more cash in consumers’ pockets.”
“However,” Cole added, “the vast majority of Americans remain in financial distress, with a growing number in crisis. Unemployment and housing remain stubbornly weak and until this improves, the American consumer will likely continue to experience financial anguish.”
By: Carrie Bay

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