CR Index: At last, consumers' financial lives improve

Despite international unrest and escalating energy prices, the March Consumer Reports Index reveals its most positive results in two years. A major decline in consumer financial troubles and positive sentiment provide some encouraging news for the American consumer. 

The Consumer Sentiment Index has broken into positive territory at 50.3, which is up from 48.7 a month ago. 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. This is the first time sentiment has been in positive territory since it was first measured in October, 2008.

Driving the gain in consumer sentiment, the Consumer Reports Trouble Tracker Index, which is the measure of the financial difficulties faced by consumers, fell sharply to 44.8, down nearly 10 points from the prior month (58.7). The Trouble Tracker Index is now at its lowest level since it was first reported in April 2008.  Declines were evident for a wide range of reported financial difficulties in the past 30 days.

The Consumer Reports Stress Index, a measure of the stress consumers feel in their everyday lives versus a year ago, is also down slightly in March to 58.7 from 59.3 the prior month, though it is up from the prior year (57.7).  The survey results about consumer spending still have not shown the same optimism.

"The March index provides the most encouraging results that we have seen since we started the index more than two years ago," said Ed Farrell, a director of the Consumer Reports National Research Center.  "Consumers may be feeling that they are finally making strides in the right direction when it comes to their financial well-being."

Though broad improvements were evident, we still see two problem areas for consumers: a lack of new jobs and an increase in missed mortgage payments. After remaining locked at 49.2 for the past three months, the Consumer Reports Employment Index is up slightly to 49.7 in March, and is also up versus one year ago (48.7). The improvement in the Employment Index this month was the result of a drop in job losses in the past 30 days (5.3 percent) versus the prior month (6.7 percent). However, only 4.6 percent of consumers reported starting a new job in the past 30 days, down slightly from the prior month (5.2 percent).

And the proportion of consumers missing a mortgage payment in the past 30 days has been on the rise over the past several months. It is now at 3.1 percent, up from 2.0 percent in December.

Those issues may be why consumers are holding onto their money despite improvements in the Sentiment and Trouble Tracker indices. The Consumer Reports Past 30-Day Retail Index, reflecting purchases consumers made in several categories in February, is 10.5, down slightly from both the prior month (11.6) and a year ago (11.1). The Consumer Reports Next 30-Day Retail Index, reflecting planned purchasing in March, also dropped to 7.6 from 8.3 last month, though it remains about even with one year ago (7.3). 

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 1,269 interviews were completed (1,019 telephone and 250 cell phone) among adults aged 18+. Interviewing took place between February 24 and February 27, 2011. The margin of error is +/- 2.8 percentage points at a 95% confidence level.—Mandy Walker