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Consumer Confidence May Soften, Challenging The Holiday Season

Conclusion runs counter to many optimistic forecasts 10/09/2017 09:15:00 AM Eastern

A banner holiday selling season? Not likely, according to one group of forecasts.

The latest release of the LegalShield Law Index indicates that Q4 may be more challenging than previously predicted.

The latest index continues to signal that consumer confidence will soften over the remainder of the year, as it did in September. A key component of the Law Index — the Consumer Financial Stress Index — edged up (worsened) from 90.4 to 90.8 last month following a 3.4 point increase in August, while both the Conference Board’s Consumer Confidence Index and the University of Michigan’s Index of Consumer Sentiment eased.

“As our data have led us to expect, separate measures of retail sales released in August by the U.S. Department of Commerce and the National Retail Federation both declined, and inflation-adjusted consumer spending also fell,” commented James Rosseau, LegalShield’s chief commercial officer. “While time will tell, the LegalShield data, based on demand for legal services, indicate that retail sales and other consumer activity may fall short of expectations this holiday shopping season.”

Though consumer finances are generally healthy, there remains a noteworthy divergence between LegalShield data and the Conference Board’s Consumer Confidence Index. Historically, when these two indices diverge, it is typically Consumer Confidence that moves into line with LegalShield data, as evidenced in the run-up to the 2008-09 recession.

“Consumer spending accounts for a huge portion — more than two-thirds — of the U.S. economy,” Rosseau said. “Although we’re not expecting a poor retail season ahead, decision makers who are counting on a banner year for retail spending might be disappointed.”

Another component of the Law Index is the LegalShield Housing Activity Index, which decreased (worsened) 2.2 points to 111.3 in September, mostly due to a weakening of LegalShield’s data stemming from real estate matters opened by its members.

Housing starts declined in August and are down 6.9 percent year-to-date. The U.S. housing market continues to face significant headwinds, including rising home prices (up 6 percent year over year) and substantial supply shortages at the lower end of the market. Recent storms may lead to shortages of labor and building materials, further limiting housing supply. Still, if builders can overcome some of these hurdles, housing starts could improve to a 1.3 million annual pace by the end of the year.

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 proprietary database of member demand for, and usage of, legal services.

Additional predictive takeaways based on the data through September:

Real Estate: This component fell (worsened) 2.5 points to 101.8 in September, and is down nearly 2.0 percent year to date. Demand for homes remains robust, but supply shortages have drained the housing market’s momentum. The effect of Hurricanes Harvey and Irma are expected to have a negative effect on home sales for the rest of the year, though elevated prices should provide a market signal to boost housing construction in the longer term. If housing starts rebound in the final months of 2017, price pressures may ease somewhat, which could boost home sales and the overall economy in early 2018.

Bankruptcies: A substantial worsening of student, auto, and credit card debt together could result in an acceleration of U.S. bankruptcies in the next one to two years. Even so, the LegalShield Bankruptcy Index continues to suggest that there is little cause for concern in the immediate future.

Foreclosures: A sharp increase in foreclosures is unlikely in the near-term. The LegalShield Foreclosure Index is calibrated to provide an early warning signal of an impending rise in foreclosure activity, and when this occurs, it could indicate the beginning of the end of the current business cycle.

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.

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