20 May 2009

 

NEW RESEARCH TRACKING U.S. CONSUMER WELLBEING SHOWS FINANCES IMPROVING, BUT STILL GLOOMY

 

  • Investment company Alliance Trust today launched a new measure that tracks US consumers’ financial wellbeing, the Alliance Trust US Financial Reality Index

 

  • Improvement in US consumers’ financial health is considered essential to any US and global recovery – their spending makes up over 70% of US GDP and still accounts for almost a fifth of global GDP

 

  • In the first quarter of 2009, the Financial Reality Index showed a slight improvement in US consumers’ situation but the index remains well below the critical level of 100

 

  • Alliance Trust research shows US consumer financial wellbeing has now improved for two successive quarters, while UK consumers have only seen an upturn over the last quarter

 

US consumers saw a slight improvement in their financial wellbeing in the first quarter of this year as inflation eased the pressure on household budgets, but their situation remains extremely depressed, according to a new measure developed by investment company Alliance Trust.

 

The bespoke measure, the Alliance Trust Financial Reality Index, combines readings of the state of household budgets, net wealth and the economic background to show how well-off consumers are and can indicate future consumer spending trends as shown by the following graph.

 

 

 

Shona Dobbie, Head of the Alliance Trust Research Centre said, “Results from our new US Financial Reality Index show that pressure on US consumers is easing, but only slightly. Falling prices mean people have a little more to spend but they are still facing enormous economic concerns, such as increased unemployment and the sharp reduction since the end of 2007 in their net wealth.

 

Our new index is based on research that has mapped consumers’ financial wellbeing going back more than 10 years. Over the long term, the US Financial Reality Index has proved to have a very close relationship with actual consumer spending growth. Therefore, while our index has seen a small turnaround in the last two quarters, the fact that it remains depressed suggests spending will be relatively muted over the rest of the year.

 

We believe our new index is important because we will only see sustained global recovery once the US consumer starts spending again. Investment by corporations that is not accompanied by consumer recovery may lead to a stop-start cycle in the economy rather than genuine recovery.”

 

In the first quarter of 2009, the US Financial Reality Index, which gives the overall picture of consumer wellbeing, improved slightly to 71.1 from 69.9, showing that consumers’ financial health remains well below the critical level of 100, above which they would be experiencing better than average financial conditions.

 

Of the three principal measures that make up the index, only household budgets saw any significant improvement, rising to 147.1 from 125.1. Inflation fell sharply towards zero and, therefore, real disposable income levels rose. Consumers benefitted from a drop in gasoline prices and a sharp fall in mortgage rates. However, this was overshadowed by a continuing deterioration in the economic background, the second measure of the index, which fell to 12.0 from 47.7, with GDP growth having declined for three successive quarters, unemployment rising and delinquencies on consumer loans continuing to increase. The third measure, net wealth, moved up but only slightly from 0.0 to 3.7 and remained the weakest of the three measures. At the end of the first quarter, equity prices were still almost 40% lower than at the same time last year, while debt levels also remain high. The moderate rise was due to signs that house prices were falling at a slower pace.

 

Alliance Trust also tracks the financial wellbeing of UK consumers in its original Financial Reality Index, which was launched in 2007. While the new index shows that after seven quarters of decline, US consumers have now experienced two successive quarters of improvement in their financial wellbeing, UK consumers have so far only seen a single quarter of improvement, following five straight quarters of deteriorating conditions.

 

The full US Financial Reality Index factsheet is available at www.alliancetrust.co.uk/research

 

Contacts

Jane Holligan, Media Relations Manager          Clare Dundas/Anjali Unnikrishnan

Alliance Trust                                                    Finsbury

Tel  +44 (0)1382 306064                                   Tel  +44 (0)20 7251 3801

Mobile  07793 296813                                      Email  alliancetrust@finsbury.com

Email  jane.holligan@alliancetrust.co.uk      

Web www.alliancetrust.co.uk

 

 

Notes to editors

 

  1. Alliance Trust PLC is a self-managed investment company with investment trust status. A FTSE-100 company, it is the largest generalist UK investment trust by assets listed on the London Stock Exchange.

 

  1. Founded in 1888, the company is based in Dundee and has offices in Edinburgh and London.

 

  1. The Research Centre is part of Alliance Trust and was formed to carry out economic and social analysis to deepen our understanding of economies, markets and socio-economic issues.

 

  1. Alliance Trust also publishes a quarterly Financial Reality Index that measures the financial health of consumers in the UK that is available at www.alliancetrust.co.uk/research

 

  1. Photographs of Shona Dobbie are available.