Sentiment Rises as Consumers Face Fewer Financial Woes at Start of 2011

January 14, 2011 |

Actual retail spending for December modestly higher than last season; new cars see a boost

Yonkers, NY – Consumers report they are more optimistic, with sentiment numbers climbing to their highest level in more than two years, while Americans claims to be facing fewer financial difficulties than they did one year ago, according to the Consumer Reports Index for January. 

The Consumer Reports Sentiment Index (48.7) is up from the prior month (45.1), from one year ago (44.1), and is at its highest level recorded since October 2008.

“Some of the rise can be attributed to the seasonal January jump, but not all of it. Overall, consumers are feeling better about their financial situation and hopefully this will translate into increased economic engagement in 2011 if this trend continues,” said Ed Farrell, a director of the Consumer Reports National Research Center. 

Consumers are facing fewer financial difficulties than they did one year ago. The Consumer Reports Trouble Tracker Index (54.2) is down from last January (58.2). In recent months the Trouble Tracker Index has crept upward, pointing to increasing financial difficulties for consumers. January’s Consumer Reports Trouble Tracker Index stands at 54.2, up from 52.7 the prior month and from its recent low in November (49.3).

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 one year ago (69.0). 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.

Consumer retail spending for December showed modest gains versus one year ago. The Consumer Reports Past 30-Day Retail Index (reflecting December activity) came in at 15.4, up slightly from 14.1 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%) purchased major home electronics in December, up significantly from last year (15.8%).

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, available at www.ConsumerReports.org, 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:

Consumer Reports Sentiment Index: 48.7*

• Consumer sentiment for January (48.7) is up from last month (45.1) and from one year ago (44.1). Consumer sentiment is at its highest level since first tracked in the Consumer Reports Index (October 2008). 
• The most optimistic consumers: Age 18-34 at 57.2 (up from 53.5 the prior month), and households with income of $100K or more at 57.4 (up from 54.5 a month earlier). The most pessimistic consumers: Households with income less than $50,000 at 42.7 (up from 40.2 the prior month), and those age 65 and older at 44.1 (up from 38.7 a month earlier).

*  The Consumer Reports Sentiment Index captures respondents’ attitudes regarding their financial situation, asking them 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.

Consumer Reports Trouble Tracker Index: 54.2*

• Consumers faced more troubles in December this month than November. The index increased to 54.2 in January, up from December’s 52.7, though the Consumer Reports Trouble Tracker Index has improved from one year ago (58.2).
• Negative developments were led by an increase in consumers that were unable to afford medical bills or medications in the past 30 days, to 15.6% from 13.3% in December; and an increase in those that have missed a payment on a major bill (not mortgage), to 10.7% from 9.5% a month earlier.
• Overall, the most prevalent consumer troubles include: Unable to afford medical bills or medications (15.6%); Missed payment on a major bill – not mortgage (10.7%); Lost or reduced health-care coverage (8.6%).
• Lower-income households, earning less than $50,000 a year, have been disproportionately affected. In the past 30 days: 24.9% Unable to afford medical bills or medications; 16.8% Missed payment on a major bill (not a mortgage); 13.4% Lost or reduced health-care coverage; and, 11.6% Lost job, versus 6.5% among all consumers.

*  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, 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 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.

Consumer Reports Retail Index: Past 30-Day 15.4, Next 30-Day – 8.3*

• The Past 30-Day Retail Index for January (reflective of December activity) is 15.4, up from the prior month (12.4), as well as a year ago (14.1). January’s Next 30-Day Retail Index, reflective of planned purchases for January, is at 8.3, and is down slightly from the same period last year (8.9%).
• Looking in detail at the categories comprising Consumer Reports Past 30-Day Retail Index, gains are closely associated with the performance of major home electronics. One- fifth (20.8%) purchased major home electronics in December, up significantly from last year (15.8%).
• 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.
• Among the non-index categories, past 30-day purchases (December activity) are up for new cars (3.2%) versus a year ago (1.9%), while used cars and home purchasing remained unchanged from the prior year. Planned purchasing in January for used cars (5.9%) was up substantially from one year ago (3.4%); plans to buy a home (0.9%) were down from a year ago (2.2%); and intent to buy a new car (2.4%) 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. 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 and 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.

Consumer Reports Employment Index: 49.2*

• The Consumer Reports Employment Index remains weak in January (49.2), and is unchanged from the prior month (49.2). In the past 30 days, the proportion of Americans that have lost their job is down to 6.5%, from 7.4% a month earlier. The number of Americans that have started a job in the past 30 days (4.9%) is also down compared to a month earlier (5.7%), and is on par with one year ago (4.7%). The Employment Index points to two groups that have fared worst this month: adults 35 to 64 years of age (48.1), and those in households earning less than $50,000 (47.9).

*  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.

Consumer Reports Stress Index: 55.4*

• The level of stress consumers feel they are under is down to 55.4 from both the prior month (60.8) as well as one year ago (59.0). Stress is now at its lowest level since first measured in April 2009.

*  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).

For more information regarding the Consumer Reports Index, visit www.ConsumerReports.org.

About The Consumer Reports Index

The Consumer Reports Index, conducted by the Consumer Reports National Research Center, is a monthly telephone and cell phone poll of a nationally representative probability sample of American adults. A total of 1,259 interviews were completed (1,009 telephone and 250 cell phone) among adults aged 18+. Interviewing took place between January 6th and January 9th, 2010. The margin of error is ± 2.8 points at a 95% confidence level.

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