CredAbility Consumer Distress Index: Grip of Financial Distress Tightens Again in Third Quarter

Last Updated Apr 26, 2011 5:12 PM EDT

CredAbility, one of the leading nonprofit credit counseling and education agencies in the United States, today released the CredAbility Consumer Distress Index results for the 2010 third quarter.

The Index, a quarterly measure that tracks the financial condition of the average U.S. household, found that the incremental improvements in consumer financial health in the first half of 2010 have been reversed due to three key, but not surprising, issues:

  1. Weaker household budgets
  2. Renewed strains on housing costs
  3. Continued high levels of unemployment.
For the quarter ended September 30, 2010, American households scored a 64.4 on the Index's 100-point scale, down from 65.2 in the second quarter of 2010.


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 the Index.
The average consumer is in financial distress in all but six states, the index found. On a more positive note, Index data shows consumers' net worth remains stable, although very low. 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.

Michigan posted the worst score on the Consumer Distress Index with a 58.11, replacing Nevada as the state with the highest level of consumer financial distress. Mississippi ranked second with a 58.76. North Dakota again had the best performance, improving its score to 79.45.

Most Financially Distressed States

The five states with the lowest Index scores were:
  1. Michigan 58.11 (replacing Nevada)
  2. Mississippi 58.76
  3. South Carolina 60.10
  4. Alabama 60.23
  5. Indiana 60.68
"The third quarter was a mix of bad and good news," said Mark Cole, CredAbility's chief operating officer and executive responsible for the CredAbility Consumer Distress Index.

"Consumers continue to clean up their balance sheets, mortgage delinquencies appear to be stabilizing and credit scores remain reasonably good. The uptick in spending, which has been largely focused on necessities, such as back-to-school, is being paid for with current funds, not borrowing. Mortgage refinancing is putting more cash in consumers' pockets. However, 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," he said.

Cole added: "One big change this quarter is the sharp increase in delinquent payments by renters, who comprise just under one-third of the U.S. housing population."

Here are some other highlights:

  • Among the most distressed states, Indiana moved from No. 12 to No. 5 and Ohio from No. 13 to No. 8. The rust-belt states continue to suffer from extremely high unemployment levels.
  • Alabama and Louisiana, which were likely affected by the Deepwater Horizon Gulf oil spill, also moved up in the distress index. Alabama moved from No. 8 to No. 4 and Louisiana moved from No. 29 to No. 22 most distressed.
  • Florida's position in the rankings improved from No. 3 to No. 7 most distressed and California moved from No. 7 to No. 10, although both states are still among the most financially distressed in the country. California accounts for about one-eighth of the nation's GDP.
  • Forty-four states and the District of Columbia continued to score at levels that indicate distress, up from 41 in the second quarter of 2010.
  • The Index shows that underemployment increased, with approximately 100,000 people moving from full-time to part-time employment.
  • Only six states, led by North Dakota (79.45) and South Dakota (76.19), scored above the distress threshold of 70 points. Others were Nebraska (74.87), New Hampshire (72.77), Wyoming (72.54) and Vermont (70.88).
To see the full report, as well as state by state maps, go to CredAbility.org/ConsumerDistressIndex. A link to the Index will also be posted on the CredAbility Twitter account, which can be found at http://twitter.com/CredAbility.

READ MORE:


Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and The Equifax Personal Finance Blog, and is Chief Content Strategist at RealtyJoin.com, a community for real estate investors.
  • Ilyce Glink On Twitter»

    Ilyce R. Glink is an award-winning, nationally-syndicated columnist, best-selling book author and founder of Best Money Moves, an employee benefit program that helps reduce financial stress. She also owns ThinkGlink.com, where readers can find real estate and personal finance resources.