Consumer Financial Stress Spikes to Four-Year High
- Biggest Jump in Consumer Financial Stress in History of LegalShield Law Index
- Requests for Debt Collection Assistance at Highest Level Since 2012
ADA, Okla. – April 13, 2020 -- Released today, the 1st Quarter 2020 LegalShield Law Index, a suite of leading indicators of the economic and financial status of U.S. households and small businesses, saw its largest ever increase in its Consumer Financial Stress Index in the first quarter, signaling that consumer confidence is likely to fall sharply in the coming months as the worsening coronavirus pandemic spreads throughout the country. LegalShield has been measuring the demand for various legal services for more than 15 years.
“Consumer confidence fell off a sheer cliff in the latter part of the quarter and our indices now indicate that consumer financial health will deteriorate rapidly in the coming months,” said Scott Grissom, Senior Vice President and Chief Product Officer, LegalShield. “The turnabout from the 4th quarter is nothing short of remarkable, as we have never registered a larger and more abrupt increase in consumer financial stress in the 16-year history of the series. Americans are facing unprecedented difficulties in their lives today.”
The quarterly LegalShield Law Index reflects the demand for legal services among the company’s provider law firms in all 50 states. The Law Index is a suite of leading indicators of the economic and financial status of U.S. households and small businesses, including the LegalShield Foreclosure Index in addition to the Consumer Financial Stress Index, Housing Activity Index, Real Estate Index, and the Bankruptcy Index. For full LegalShield Law Index quarterly findings visit https://www.legalshield.com/law-index.
Consumer Financial Stress Rises to Four-Year High, Largest Quarterly Increase Ever
The LegalShield Consumer Financial Stress Index (CFSI) rose (worsened) 11.7 points in the quarter, from a record low of 68.9 (Q4 2019) to 80.6 (Q1 2020), the highest reading in nearly four years and the largest-ever increase in series history. The increase in financial stress was roughly in line with the Conference Board’s Consumer Confidence Index, which recorded in March its weakest reading in nearly three years.
A leading index, LegalShield CFSI’s dramatic jump this quarter strongly suggests that consumer confidence will suffer in the next 1-3 months as financial pressures stemming from widespread job loss mount. More than four in five U.S. counties are currently under lockdown, causing at least one quarter of the U.S. economy to be idled, according to Moody’s Analytics. This sudden change of fortune has caused the U.S. labor market – previously a robust tailwind for growth – to collapse. Initial unemployment claims surged to nearly 16 million in a three-week period in late March/early April. Although the full force of the coronavirus crisis was not felt until mid-month in March, the financial stress consumers are now facing nonetheless manifested itself in their specific legal requests, including assistance with:
• Billing Disputes, at their highest level since December 2015;
• Debt Collection, at their highest level since April 2012;
• Credit Reports/Repair, at their highest level since September 2017 (the fallout from Hurricanes Maria and Harvey);
• Employment Law, at their highest level since August 2010 (when the national unemployment rate was 9.5%); and
• Landlord/Tenant issues, at their second-highest level since October 2009.
LegalShield Housing Activity Index Falls to its Lowest Point since 2017
The LegalShield Housing Activity Index, a leading indicator of housing starts, fell 1.9 points from 111.9 (Q4 2019) to 110.0 (Q1 2020), and is down nearly 8 points from its post-recession peak in Q3 2019.
Though housing starts eased 1.5% in February, at 1.6 million they remain well above post-recession trends. However, the pandemic threatens to significantly undercut near-term homebuilding activity. The effects of moratoria on construction activity imposed by state and local governments have already taken hold: the price of lumber was down 41% in late-March from February levels, pointing to plummeting demand for building materials despite the approaching spring building season. LegalShield expects new construction activity to fall sharply over the next few weeks.
LegalShield Real Estate Index improves slightly – but expected to weaken
The LegalShield Real Estate Index, a leading indicator of existing home sales, rose 6.5 points to 102.4 in Q1 2020, up from 95.9 in Q4 2019. Meanwhile, existing home sales increased 6.5% in February to a 5.77 million annualized rate, the highest level since 2007. Despite the rebound in the Real Estate Index this month, home sales – like much of the rest of the economy – are expected to grind to a near standstill in the coming weeks. Positive developments in the housing market during the second half of 2019 and early 2020 are likely to reverse as stay-at-home orders covering more than 90% of the US population will cause home viewings to plummet. As a result, although mortgage rates are near all-time lows, few prospective home buyers are likely to purchase a home until shelter-in-place-orders are lifted.
LegalShield Bankruptcy Index signals subdued bankruptcy activity will spike in months ahead
The LegalShield Bankruptcy Index, a forward-looking indicator of bankruptcy filings, decreased (improved) roughly 15 points from 48.1 in Q4 2019 to an all-time low of 33.5 in the first quarter. However, while the demand for bankruptcy-related legal services may not have risen yet, it is clear from broader economic trends that bankruptcies (a lagging indicator of financial stress) may rise later this year as the pandemic triggers a sharp increase in unemployment, causes some consumers to rely more heavily on credit, and impairs their ability to service existing debt. Indeed, there are already signs that this is occurring: monthly intakes for LegalShield’s “Credit reports and repair” legal services are up 46% from a year ago after falling to an all-time low in December.
LegalShield Foreclosure Index indicates that foreclosure activity is likely to rise as the economic impacts of COVID-19 take hold
The LegalShield Foreclosure Index jumped (worsened) 20.3 points, rising from 47.9 in Q4 2019 to 68.2 in Q1 2020 as the coronavirus pandemic gripped the U.S. economy. Rapidly rising unemployment will undoubtedly make it more difficult for millions of Americans to service their mortgages. According to Bloomberg, as many as 30% (or 15 million) of Americans with home loans could halt their mortgage payments should stay-at-home measures continue beyond the summer.
A trailblazer in the democratization of affordable access to legal protection, LegalShield is one of North America’s largest providers of online legal subscription plans covering more than 4.375 million people. Its IDShield identity theft solution for individuals and families has more than one million members. LegalShield and IDShield serve more than 141,000 businesses. In addition, over 40,000 companies offer LegalShield and IDShield plans to their employees as a voluntary benefit. Both legal and identity theft plans start for less than $25 per month.
LegalShield’s legal plans provide access to qualified law firms and their attorneys with an average of 22 years of experience in family matters, estate planning, financial and business issues, consumer protection, tax, real estate, benefits disputes and auto/driving issues. Unlike other legal plans or do-it-yourself online services, LegalShield has dedicated law firms in 50 states and all provinces and territories in Canada that members can access at a fraction of typical law firm hourly rates.
IDShield provides identity monitoring and restoration services and is the only identity theft protection company armed with a team of Licensed Private Investigators to restore a member’s identity. For more information visit https://www.legalshield.com/law-index.