ADA, Okla., Dec. 8, 2017 /PRNewswire/ -- The LegalShield Law Index, released today, continues to signal that while consumer financial stress remains low, confidence measures are likely overstated. The index's measure of consumer financial stress is a leading indicator of the Consumer Confidence Index, which reached a 17-year high last month. While consumers are right to feel good about the economy, confidence levels appear to have overshot broader economic conditions, such as actual consumer spending. In addition, the LegalShield Housing Activity Index, a leading indicator of housing starts, suggests that housing construction will likely remain subdued over the near-term, but may rebound in 2018 if builders can overcome labor and material shortages.
LegalShield's Consumer Financial Stress Index rose (worsened) from 86.5 to 88.9 in November but still remains near an all-time low. The Conference Board's Consumer Confidence Index increased (improved) in November to 129.5, far exceeding most economists' expectations. As we've seen throughout 2017, there is a noticeable and unusual divergence between the two indices, with LegalShield data — along with other "hard" data sources, such as consumer spending — indicating that consumer confidence is likely overstated. For example, despite the fact that consumer confidence is up more than 18 percent from a year ago, real consumer spending has grown at a slower rate over the last 12 months (2.6 percent) than it did in 2016 (2.9 percent).
"Looking ahead, major storms in Texas and Florida may temporarily boost spending as businesses in affected communities reopen and residents replace damaged property," observed James Rosseau, LegalShield's chief commercial officer. "As evidence of this pending increase, the personal savings rate reached its lowest point in nearly a decade, and auto sales recently surged as consumers began replacing nearly 1 million damaged vehicles. Time will tell whether the holiday shopping season will benefit from this temporary demand surge."
The LegalShield Housing Activity Index is essentially flat on the year but remains elevated by historical standards (similar to housing demand). Housing starts jumped to an annual high of nearly 1.29 million in October, consistent with LegalShield's predictions made earlier in August and September. However, homebuilders continue to face significant headwinds on the supply side, such as skilled labor shortages and high input prices, particularly for lumber.
There are some indications that the housing market may pick up in 2018. Housing permits—the precursors to housing starts—jumped nearly 7 percent in October and are at their highest point in over two years. In addition, the number of new housing units authorized but not yet started is up 14 percent year-over-year, which could mean housing starts will continue to rebound in the short- and medium-term.
"In the economy overall, there's been greater investment by businesses, perhaps motivated by confidence surveys," said Rosseau. "This has been good for growth, though consumers are not seeing much in the way of increased wages — which is perhaps part of the reason for the relatively pedestrian consumer spending data we've seen 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, auto loan, 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 November:
- The LegalShield Real Estate Index, a leading indicator of existing home sales, suggests that home sales are unlikely to improve at the end of 2017. If builders begin to overcome significant hurdles and housing starts pick up, home sales may improve in early 2018.
- The LegalShield Foreclosure Index, an advance measure of foreclosure activity, suggests that foreclosures should remain subdued in the short term.
The five LegalShield indices closely track a handful of key economic indicators, such as the Consumer Confidence Index (developed by the Conference Board), Housing Starts (reported by the U.S. Census Bureau), and Foreclosure Starts (reported by the Mortgage Bankers Association). Each LegalShield index has undergone a battery of statistical tests to validate its relationship to an existing economic indicator that sheds light on the health and direction of the U.S. economy. LegalShield publishes the Law Index monthly, on the sixth business day of each month. Please contact Jeff Monford at firstname.lastname@example.org for a copy of the economic assessment.
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