While Consumer Stress Remains Historically Low, Accelerating Inflation and Slowing Housing Sector Tell a Different Story
Data from LegalShield’s Economic Stress Index reveals sharp decline in homebuilding and sales trends while consumers are feeling the effects of rising inflation
New data from LegalShield, consumer brand of PPLSI and the leading provider of membership-based legal services and identity theft protection plans, shows that once again, overall consumer stress remains muted and relatively unchanged from September, despite consumer prices increasing at a 6.2% annual rate according to the Bureau of Labor Statistics. Record-high home prices are also feeding into accelerating inflation and weighing on buyer sentiment, and prospective buyers are seeing their purchasing power shrink.
Notably, data from the LegalShield’s Housing Construction Index revealed the steepest decline on record, plunging 7.8 points in October as homebuilders struggle with rising input costs, supply chain disruptions and labor shortages. Several metrics point to a slowdown in construction activity, including residential permits falling 7.7% in September due to the severe shortage in available lots and other inputs. The LegalShield data is a leading indicator of housing starts and suggest that homebuilding activity is unlikely to rebound in the short term while rising costs and waning demand impact the market.
“Our data reveals that members are shifting their focus away from real estate and home purchases and toward consumer finance, employment, and landlord/tenant advice from our network of law providers. There’s more pressing matters on their minds with rising inflation, federal aid, and loan and eviction moratoriums expiring,” said Jeff Bell, CEO of PPLSI, parent company of LegalShield.
Higher prices for essential goods and services are reducing consumers’ spending power and, if sustained, could hamper consumers’ ability to spend elsewhere in the economy. Inflation-adjusted disposable income has fallen in five of the last six months with the trend expected to continue through the holiday season. In response, consumers may turn to short-term financing tools such as credit cards and buy-now-pay-later programs, which could potentially increase financial stress in the months ahead.
Key Highlights and Trend Predictions
LegalShield Consumer Stress Index
- The Consumer Stress Index decreased (improved) 0.9 point in October, remaining virtually unchanged and recovering from a half-point increase the month prior.
- Favorable employment trends and the cushion of increased savings amassed during the pandemic are positive developments, though stress may still rise as inflationary pressures spread through the economy.
- Despite a solid financial base, the gap between consumer perceptions of the economy (which are dour) and actual economic fundamentals (which are generally solid) is widening. High inflation is the primary reason for this divergence.
LegalShield Bankruptcy Index
- Bankruptcies continue to hover at all-time lows. The LegalShield Bankruptcy Index increased (worsened) 0.6 point to 19.5 in October, and total seasonally adjusted bankruptcy filings fell by 0.9% to 30,703 in September and were down 19% compared to a year ago.
- Increased government support during the pandemic has provided consumers with a cushion and kept bankruptcies muted. As the economy continues to normalize, bankruptcies may rise next year.
LegalShield Foreclosure Index
- The Foreclosure Index inched up in October and remains virtually unchanged and near historically low levels.
- Despite foreclosure filings having doubled year-over-year, they remain 70% below the levels from 2 years ago, highlighting the effect of pandemic-related assistance programs and legislation.
- In stark contrast to other recessions, home values have skyrocketed since the beginning of the pandemic leading to high levels of equity for many homeowners; CoreLogic reports that homeowners have gained an average of $51,500 in equity in the second quarter of 2021, five times of the gain from the same period one year prior.
LegalShield Housing Sales Index
- For the first time in 6 months, the Housing Sales Index declined sharply. Despite existing home sales rising 7% in September to an 8-month high, the level is still over 2% lower than year-ago levels.
- The rapid rise of home prices is pressuring buyers out of the market; well-capitalized buyers are making all-cash offers and making it much more difficult for those that need financing to win a deal. This has pushed first-time homebuyers out of the market, where they account for the lowest share of sales in 6 years, according to the National Association of Realtors.
- With interest rates likely to rise in the coming quarters, increasing mortgage rates will continue to dampen demand moving forward.
The LegalShield Economic Stress Index is comprised of economic and financial status of U.S. households and small businesses and provides real-time, actionable intelligence to see the direction of the U.S. economy in the near term. The five sub-indices highlighted include Consumer Stress Index, Bankruptcy Index, Foreclosure Index, Housing Construction Index and Housing Sales Index, and are constructed from LegalShield’s proprietary data. The sub-indices reflect the demand for various legal services over the past 15 years and is based on data collected through LegalShield’s provider law firms in all 50 states.
A trailblazer in the democratization of affordable access to legal advice, counsel, protection, and representation, LegalShield is the world’s largest platform for legal, identity, and reputation management services protecting individuals and businesses across North America. Founded in 1972, LegalShield, and its privacy management company, IDShield, has provided individuals, families, businesses, and employers with tools and services needed to affordably live a just and secure life. Through technology and innovation, LegalShield is disrupting the traditional legal system and transforming how and where people receive legal guidance and services, with access to thousands of qualified, trusted attorneys and law firms. To learn more about LegalShield and IDShield products and services, visit LegalShield.com and IDShield.com.
A champion of equal access to justice and security, PPLSI has provided individuals, families, businesses, and employers with the tools and services needed to live a just and secure life for 49 years. Under PPLSI, our consumer brand, LegalShield, is disrupting the legal services industry by giving everyone the resources and tools to affordably find their justice. We are transforming the traditional way of receiving legal guidance and services and providing qualified, trusted attorneys and law firms in the palm of your hands. Our security brand, IDShield, specializes in privacy and reputation management and protects your online data and information. To learn more about PPLSI and our brands and products that currently improve and empower 4.5 million individuals and 140,000 businesses across North America, visit PPLSI.com, LegalShield.com and IDShield.com.
Hollon Kohtz, Director of Publicity, LegalShield