LegalShield, Ada, Ok., on Wednesday said its Law Index continues to signal that consumer financial health and demand in the housing market remain strong .
A key component of the Law Index — the Consumer Financial Stress Index — fell (improved) substantially, from 90.8 to 86.5 in October, and is at its lowest point in 12 years. The Stress Index tends to lead the Conference Board’s Consumer Confidence Index, which also improved in October to a nearly 17-year high, surpassing market expectations. However, LegalShield data suggest that while consumers are right to feel good about the economy, confidence levels appear to have overshot broader economic conditions, and consumer spending data reflect this concern. For example, consumer confidence is up more than 11% in 2017, yet both consumer spending and retail sales are growing at roughly the same pace as last year.
“The LegalShield Law Index shows that consumers are right to be confident right now, as consumer financial stress is at a 12-year low. As in previous months, however, we believe confidence is a bit overstated, as demonstrated by the inconsistent consumer spending data we’ve seen this year,” explained James Rosseau, LegalShield’s chief commercial officer. “We’ll be monitoring the holiday shopping season closely, as many economists expect consumer spending to receive a temporary post-hurricane boost due to federal recovery efforts. A positive note is that wages for construction workers jumped 3.3 percent in September compared to just 2.5 percent for the average worker — a sign that employers are willing to offer higher wages to attract scarce workers. This could help boost spending in the regions recovering from the storms.”
Another component of the LegalShield Law Index, the Housing Activity Index, is essentially flat on the year but remains historically strong, reflecting robust demand in the housing market. However, housing starts further weakened in September on the back of severe weather in Texas and Florida, and are down 4.3% this year. The U.S. housing market continues to face significant headwinds on the supply side, and hurricanes in two major housing markets exacerbated labor shortages, damaged equipment, and delayed construction projects, further limiting new housing starts. Given that housing permits (the precursors to housing starts) also fell more than 4% from a year ago in September, a strong rebound in housing starts is unlikely to occur this year.
The LegalShield Law Index also addresses bankruptcy trends. Specifically, the LegalShield Bankruptcy Index, a leading indicator of monthly bankruptcy filings, suggests that bankruptcies will remain subdued in the near term. However, if the combination of student loan debt, auto loan debt, and credit card debt begin to drag on consumer financial health, bankruptcies may rise in the medium term.
Debuting in May, the LegalShield Law Index is made up of five indices: the LegalShield Consumer Financial Stress Index, LegalShield Housing Activity Index, LegalShield Bankruptcy Index, LegalShield Foreclosure Index, and LegalShield Real Estate Index. Each index depicts the health of the U.S. economy using LegalShield’s unique and proprietary database of member demand for and usage of legal services.
Additional predictive takeaways based on the data through October:
- The LegalShield Real Estate Index rose (improved) 0.6 point to 102.4 in October, but is down 1% this year. The Index, a leading indicator of existing home sales, suggests that home sales are unlikely to improve in 2017. If builders begin to overcome significant hurdles and housing starts pick up, home sales may improve in early 2018.
- The LegalShield Foreclosure Index fell (improved) 5.4 points to 58.5 in October, and is down 19% year-over-year. This index is an advance measure of foreclosure activity and suggests that foreclosures should remain subdued in the short term.”
