Consumers are more optimistic, with sentiment numbers climbing to their highest level in more than two years, according to the Consumer Reports (CR) Index for January.
At the same time, the survey says American consumers appear to be facing fewer financial difficulties than they did one year ago,
The Consumer Reports Sentiment Index came in at 48.7 -- up 3.6 from the prior month, 4.6 from one year ago (44.1) and now stands at its highest level since October 2008.
“Some of the rise can be attributed to the seasonal January jump, but not all of it," said Ed Farrell, a director of the Consumer Reports National Research Center. "Overall, consumers are feeling better about their financial situation and hopefully this will translate into increased economic engagement in 2011 if this trend continues.”
Less trouble
Consumers are facing fewer financial difficulties than they did one year ago, with the Consumer Reports Trouble Tracker Index down from last January. In recent months it has crept upward, pointing to increasing financial difficulties for consumers.
January’s Index stands at 54.2, compared with 52.7 the prior month and its recent low of 49.3 in November.
Stress eases
As the holidays recede, the Consumer Reports Stress Index -- a measure of the stress consumers feel in their everyday lives versus a year ago -- is down significantly in January to 55.4 from 60.8 the prior month and from 69.0 one year ago.
Beyond the expected seasonal drop, consumer stress is now at its lowest level since this measure was tracked beginning in April 2009. Though stress is still elevated (above 50), there has been a real improvement among consumers.
Retail spending
Consumer retail spending for December showed modest gains over a year ago. The Consumer Reports Past 30-Day Retail Index (reflecting December activity) came in at 15.4 -- up 1.3 from last year despite, consumers’ expressing hesitancy to spend in last month’s index.
December’s gains were closely associated with the performance of major home electronics. One-fifth of respondents (20.8 percent) purchased major home electronics in December. Last year, only 15.8 percent did.
Some of December’s retail gains were borrowed from January and the out-months. The Consumer Reports Next 30-Day Retail Index for January, reflecting January’s activity, is 8.3, down slightly from one year ago (8.9), with personal electronics and major home appliances the hardest-hit categories.
The Consumer Reports Index report comprises five key indices: the Sentiment Index, the Trouble Tracker Index, the Stress Index, the Retail Index, and the Employment Index. Here are the key findings:
Sentiment Index
The most optimistic consumers: Age 18-34 at 57.2 (up from the prior month), and households with income of $100K or more at 57.4 (up from a month earlier). The most pessimistic consumers: Households with income less than $50,000 at 42.7 (up from the prior month), and those age 65 and older at 44.1 (up from a month earlier).
The Index captures attitudes regarding financial situation, asking consumers if they are feeling better 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.
Trouble Tracker Index
Negative developments were led by an increase in consumers that were unable to afford medical bills or medications in the past 30 days and an increase in those that have missed a payment on a major bill (not mortgage).
Overall, the most prevalent consumer troubles include: Unable to afford medical bills or medications; Missed payment on a major bill -- not mortgage; Lost or reduced health-care coverage.
Lower-income households, earning less than $50,000 a year, have been disproportionately affected. In the past 30 days: 24.9 percent unable to afford medical bills or medications; 16.8 percent missed payment on a major bill (not a mortgage); 13.4 percent lost or reduced health-care coverage; and, 11.6 percent lost job, versus 6.5 percent among all consumers.
The 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, penalty fees, reduced lines of credit or other changes in credit-card terms, job loss or layoffs, reduced health-care coverage, or the denial of personal loans.
The 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.
Retail Index
Looking in detail at the categories comprising the Past 30-Day Retail Index, gains are closely associated with the performance of major home electronics.
The Next 30-Day Retail Index for January, reflecting January’s activity, is down slightly from one year ago, with personal electronics and major home appliances the hardest-hit categories.
Among the non-index categories, past 30-day purchases (December activity) are up for new cars, while used cars and home purchasing remained unchanged from the prior year. Planned purchasing in January for used cars was up substantially from one year ago; plans to buy a home were down from a year ago; and intent to buy a new car was unchanged versus last January.
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. It 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 and garden equipment.
Employment Index
The Index examines the change in employment of those that reported starting a new job versus those that have lost their job 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.
Stress Index
The Index captures attitudes regarding the amount of stress consumers feel compared with 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).
