22 July 2009

US CONSUMERS’ FINANCIAL WELLBEING IMPROVES WHILE ECONOMIC BACKDROP HITS RECORD LOW

Following the launch of its US Financial Reality Index last quarter, a measure which tracks consumers’ financial wellbeing, Alliance Trust presents its latest research for the second quarter of 2009.

The Index shows that US consumers experienced a third successive improvement in their financial wellbeing in the second quarter of this year, benefitting from falling inflation, lower house prices and mortgage rates and a reduced cost of basic goods and services. Despite this improvement, conditions facing consumers are still negative overall, and the deteriorating economic background index has fallen to a record low of 0.0.

The headline Financial Reality Index rose to 80.8 in the second quarter of this year, from 71.1 in the previous quarter. Although this rise is encouraging, and reflects falling inflation rates and lower interest rates, the Index still remains below the critical level of 100. Alliance Trust’s research indicates that if the Index were to move above this critical level, consumers would be experiencing better than average financial conditions.

As evidenced by the following graph, the Alliance Trust Financial Reality Index has previously indicated future consumer spending trends:

Shona Dobbie, Head of the Alliance Trust Research Centre, said, “Today’s results from our US Financial Reality Index show that pressure on US consumers is easing, but conditions facing them remain negative overall. Although falling prices mean people have a little more to spend, the economic background has deteriorated to a record low. Increased unemployment has also contributed to a huge stress on US households.

Over the long term, the US Financial Reality Index has proved to have a very close relationship with actual consumer spending. Therefore, while our index has seen a small turnaround in the last three quarters from recent lows, the fact that it remains depressed suggests spending will be relatively muted over the rest of the year.”

Of the three principal measures that make up the index – economic background, household budget and net wealth – only household budget saw significant improvement. This was overshadowed by worrying findings for the economic background:

· Household budget has risen to a record high of 172.8, from 147.1. This rise can be attributed to the ongoing decline in inflation, which caused real disposable income to rise.

· Alongside this, however, the economic background fell to a record low of 0.0, from 12.0. This is the weakest component of the US Financial Reality Index, and reflects contracting economic activity and rising unemployment. It is anticipated that the rate of unemployment will move even higher than the current rate of 9.5%, leading to greater pressure on US households.

· Net wealth moved up but only slightly, from 3.7 to 8.2, due to signs that house prices were falling at a slower pace. At the end of the first quarter, equity prices were still 28% lower than at the same time last year, while debt levels also remain a major burden on households.

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 three successive quarters of improvement in their financial wellbeing, UK consumers have so far only seen two quarters 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

Clare Dundas/Anjali Unnikrishnan

Finsbury

Tel: +44 (0)20 7251 3801

Email: alliancetrust@finsbury.com

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 UK investment trust by market value listed on the London Stock Exchange.

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

3. 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.

4. 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

5. Photographs of Shona Dobbie are available.