Actions vs. Surveys: Everyday American’s Economic Reality

As we released the February LegalShield Consumer Stress Legal Index (CSLI), Paul Krugman at The New York Times wrote about the gap between how Americans perceive the economy and their economic reality. He examines the exact topic I discuss with my team monthly when we review the data from our members: how are consumers acting, not how do they feel.

The CSLI crunches data from more than 150,000 calls, emails, and messages we get each month from members seeking legal help from our provider law firms. We aggregate the topics people are calling about so that we have a better pulse on the needs of our members, and at that volume, a gauge on what everyday Americans are dealing with.

We’d call this “hard” data—actual requests for legal assistance rather than survey responses. It’s not a perception of their economic reality, rather it’s facts they are confronting and seeking legal help. No one calls a lawyer for fun. They call because they need professional assistance to improve their situation.Members call about a billing dispute, or contract review. In more extreme cases it might be foreclosure or bankruptcy. The CSLI itself is based on three ingredients from those 150,000 calls for help: the Bankruptcy Index, Foreclosure Index, and the Consumer Finance Index which is comprised of approximately 60 areas of law relating to financial issues.

Why do we track those? Because more than 20 years of data show that those are two to three months ahead of the Consumer Confidence Index by The Conference Board. That’s one of the surveys Mr. Krugman references in his editorial, and an indicator tracked by just about every observer of the economy. But it’s just that: a survey. Our hard data show shifts in the economic experience of Americans ahead of their perceptions of the economy.

The February CSLI numbers show a continued trend of increased stress among consumers based on those calls for legal help. Stress has gone up 10 out of the last 12 months. What happened 12 months ago? The Fed continued its interest rate hikes to curb inflation, raising its rate to 4.5% to 4.75%. The hike in February 2023 may have been the magic number that pinched consumers into the stress zone. Rates have continued to rise, now at a 23-year high of 5.25% to 5.5%. The Fed just met and announced no rate relief this go-round, but three reductions are forecasted by the end of the year.With those rate increases, we’ve seen another trend in our data. Calls about loan modifications are at an all-time high. Our provider attorneys tell us people are calling to change loans in several different ways:

• An aging mother has been in her home for decades and has great terms on a loan. It's time to give her home to the kids, but they can’t get as good of terms, so they are adding their name to the loan rather than taking out a new one.
• Someone has missed a payment on their house and is likely to miss more due to their finances. Banks don’t want to foreclose and take the house onto its books right now because the market just doesn’t support it. So, they offer revised terms like more time to pay it off, or an interest-only balloon loan. Both of those cost more money. In the case of a balloon loan, it’s likely the entire balance will come due in three to five years, bringing a whole new set of stress.

Put simply, money is tight, and borrowing seems out of reach for many right now. That reality is hitting Gen X and Millennials particularly hard. Loan modification requests from those groups are more than triple what they were 12 months ago.We’ll continue to track the actions of consumers to gauge reality, so that you can compare them with the surveys. And our provider attorneys will help our members navigate the choppy waters and provide some relief.There are plenty more data points and insights available in our February CSLI report.