Five Insights from LegalShield’s Economic Stress Index May 2022 Report
Data from LegalShield, the leading provider of membership-based legal services and identity theft protection plans, is tracking consistently with current economic trends the U.S. is experiencing. Consumers are starting to feel a pinch financially and are entering a period of heightened borrowing costs which is leading to increased financial stress from a position of historic strength.
“We’ve been keeping a close eye on how consumers are responding to the market during this tough economic time in our history and have noticed it getting worse month over month. Americans are slowly beginning to feel the financial weight impact their daily lives, their financial decisions and how and where they’re going to spend their money,” said Matt Layton, SVP of Data, Insights, and Intelligence at LegalShield.
Below are the five insights from the LegalShield Economic Stress Index May 2022 report:
Consumer Stress Index
- The LegalShield Consumer Stress Index was mostly unchanged in May and remains near an all-time low. It edged down (improved) 0.2 point to 58.7 in May and the Conference Board’s Consumer Confidence Index increased 1.0 point to 108.6. A historically tight labor market has led to strong nominal wage growth: the latest employment report indicated that average wages are up 5.2% Y/Y. Unfortunately, inflation is outpaced wage growth, resulting in inflation-adjusted wages declining for most of the last year. Household expenditures on staples like food, gasoline, and utilities have soared: per Moody’s Analytics, U.S. households are spending nearly $350 more per month than they were a year ago. Although high prices have not yet weighed heavily on overall consumer stress, they do appear to be affecting consumer behavior.
- The LegalShield Bankruptcy Index decreased in May 2022 to the second lowest value in series history, supporting LegalShield’s view that bankruptcies will remain low for the foreseeable future given low consumer stress and a strong labor market. The Bankruptcy Index eased (improved) 0.8 point to 18.5 in May 2022, near an all-time low. Total seasonally adjusted bankruptcy filings decreased by 2.3% to 28,338 in May and were down 19% compared to a year ago. Though there are mounting headwinds to consumers’ financial health, bankruptcies are expected to remain low in the coming months, an outlook supported by LegalShield data.
- The LegalShield Foreclosure Index declined in May from its highest level since the onset of the pandemic. Foreclosure activity has been gradually returning to its pre-pandemic trend after the expiration of government support, though it remains very low by historical standards. A continued slow and steady normalization in foreclosure starts is expected in the months ahead. The LegalShield Foreclosure Index decreased (improved) 4.4 points to 39.2 in May, easing for the first time since November. Foreclosure starts jumped to 0.17% in the first quarter of 2022 with the end of government support, roughly in line with pre-pandemic levels. The combination of rising home prices and a strong labor market make a sharp increase in foreclosure activity in the near term unlikely. LegalShield data suggests that a slow and steady normalization in foreclosure starts is a more likely outcome.
Housing Construction Index
- The LegalShield Housing Construction Index was mostly unchanged in May 2022 and remains near its lowest level since the pandemic-fueled housing market surge began in mid-2020. Strong demand has sustained the homebuilding industry for the last two years and construction activity should remain healthy in the near term, but high prices on materials and rising mortgage rates are increasingly weighing on homebuilder optimism which will likely slow activity.
Housing Sales Index
- The LegalShield Housing Sales Index fell 2.8 points in May 2022 to 110.5, slipping nearer to its summer 2020 level that coincided with pandemic-era surge in sales activity. While sales activity is expected to remain above pre-pandemic levels in the near term, housing affordability is a growing concern and is likely to weigh on the market for the foreseeable future. Existing home sales fell 2.8% in April, down 5.9% compared to year-ago levels. Overall, strong demand is still driving a healthy volume of sales each month, and LegalShield expects sales activity to remain above pre-pandemic levels in the near term. However, housing affordability is clearly a growing concern, and with the LegalShield Housing Sales Index receding back to mid-2020 levels, new home sales are unlikely to bounce back this year.
LegalShield Economic Stress Index offers a real-time pulse of the economic and financial stress Americans feel due to changes in the market and economy and can identify near-term trends ahead of other indicators with proven accuracy.