ADA, Okla., Aug. 8, 2017 /PRNewswire/ — The LegalShield Law Index for July, released today, suggests that housing construction — which has risen at a stubbornly slow pace since 2012 and remains well below pre-recession levels, despite substantial demand — should pick up in the months ahead. Meanwhile, as has been the case for the last few months, the LegalShield data point to a downward correction in consumer confidence, which could negatively affect retail sales and other consumer activity in the coming months.
A component of the overall LegalShield Law Index, the LegalShield Housing Activity Index rose 3.9 points to 115.3 in July, driven by improvements in both the foreclosure and real estate components of the Law Index. The Housing Activity Index is up 1.8% for 2017 and is currently at its highest point since May 2006. Housing starts improved in June (as the Index has been signaling for several months) but remain below forecast levels, and year-over-year growth is essentially flat. The housing market continues to face significant headwinds, including higher prices for inputs (particularly lumber) and regional shortages of both skilled construction labor and land. However, the combination of existing home inventories near historic lows and nationwide housing prices now exceeding pre-recession levels should lead to increased housing activity. If the housing supply finally picks up to match current demand, construction investment should rise and housing starts may climb to an annual rate of 1.4 million or more by the end of the year.
“The LegalShield Housing Activity Index has a strong record of closely tracking U.S. housing starts over the last 15 years – and the Index continues to suggest that housing starts should be stronger than they currently are,” said James Rosseau, LegalShield’s chief commercial officer. “The Index is consistent with the fact that U.S. consumers are employed – as underscored by a strong June employment report – with solid credit, manageable debt levels, and heightened confidence about the economy. These factors, combined with historically low home inventories, point to a revival in housing activity.”
Although the LegalShield Consumer Financial Stress Index (another component of the Law Index) remains at historic lows, there continues to be a significant divergence between the “hard data” (i.e., usage data based on actual consumer behavior) captured by the Index and the “soft data” (i.e., survey data based on consumer attitudes and expectations) captured by consumer confidence measures. This divergence suggests that consumer confidence is likely to decline and come in line with the LegalShield Consumer Financial Stress Index in the next one to three months, as it has in the past, most notably in the 2008 recession.
“The LegalShield Consumer Financial Stress Index, a leading indicator of the Consumer Confidence Index, suggests that consumer confidence, though strong by historical standards, may darken during the second half of the year,” continued Rosseau. “That means retailers may see lower sales than market observers expect.”
The LegalShield Consumer Financial Stress Index inched down from 87.4 to 87.0 in July — the lowest level in over eleven years — and has improved 2% thus far in 2017. This continues to indicate that consumers’ finances are generally healthy and getting better. Still, there remains a noteworthy divergence between LegalShield data and the Conference Board’s Consumer Confidence Index. The Consumer Stress Index suggests that Consumer Confidence will decline; when these indices have diverged in the past, it is typically Consumer Confidence that moves into line with the Consumer Financial Stress Index. As such, it remains likely that Consumer Confidence will moderate somewhat in the near term, becoming more like the Financial Stress Index, which could lead to weaker-than-expected consumer spending data (i.e., retail sales) in the months ahead.
“Since the debut of the LegalShield Law Index in June, it has led well established indices in predicting trends—showing the validity and robustness of our data,” Rosseau explained. “Policy makers are interested in what our data reveal about the state of the economy overall and sectors needing support in the form of investment or regulatory change.”
The LegalShield Law Index joins other leading economic indicators in providing a forward-looking snapshot of the economic and financial status of U.S. households and small businesses. The five indices that comprise the Law Index are the LegalShield Consumer Financial Stress Index, LegalShield Housing Activity Index, LegalShield Bankruptcy Index, LegalShield Foreclosure Index, and the LegalShield Real Estate Index.
Additional predictive takeaways based on the data through July 2017:
- Bankruptcies should remain subdued in the near term. However, bankruptcies may increase in the medium term, particularly if student loan debt, auto loan debt, or credit card debt begin to drag on consumer financial health.
- Foreclosures should remain subdued in the short term.
- Home sales should continue to slowly improve in the months ahead. However, a strong sales resurgence is unlikely to occur in the near 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 overseen by a PhD economist to validate its relationship to an existing economic indicator that sheds light on the health and direction of the U.S. economy. LegalShield will publish 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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