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Happier Days Are Here Again. So Says One Economic Indicator.

Danielle Kurtzleben

Forget "the prairie fire of debt" and "Taxmaggedon." By one measure, American households are in the best financial shape since the start of the Great Recession.

U.S. households' financial health moved up to 69.9 last quarter from 67.6 in the final quarter of 2011, as measured on the 100-point scale of the Consumer Distress Index from nonprofit credit counseling agency CredAbility. While 69.9 may be the largest improvement in the last seven years, it is still well below the mid-80s readings that the nation saw through the mid- and late-1990s. The index takes into account a wide variety of data in the areas of employment, housing, credit, household budget, and net worth.

[See why unemployment remains a puzzle for economists.]

"Finances are still tight, but assuming we can hold onto gains in employment and housing, the financial health of the average household will continue to stabilize," says Mark Cole, chief operating officer of CredAbility.

That economic well-being varies widely by geography. Only the Dakotas landed in the "Good/Stable" category (80-89.9 index points), with scores of 80.2 for South Dakota and 84 for North Dakota. Nevada and Georgia landed at the bottom of the ranking, with scores of 61.7 and 64, respectively. That puts them in the group of "Distressed/Unstable" states--that is, states with scores between 60 and 69.9, a category that includes 23 states. The remaining 25 states and the District of Columbia are classified as "Weakening/At-Risk' with scores between 70 and 79.9.

While all five of the areas are weighted evenly, says Cole, he believes that jobs are a driving factor behind the other four areas measured.

"If you have jobs, then you can afford housing, and you can meet your credit obligations, and your household budget becomes easier to manage, and you ultimately have the opportunity to accumulate net worth," he says.

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That helps to explain the index figures for cities, which have little clear geographic pattern. Of the 25 largest metropolitan statistical areas, Washington, D.C.; Boston; Minneapolis-Saint Paul; Honolulu; and Dallas-Fort Worth were at the top of the index, all with scores in the low-to-mid-70s. Jobless rates in those five cities were well below the national average as of March. Meanwhile, Tampa-St. Petersburg, Detroit, Miami-Fort Lauderdale, Atlanta, and Los Angeles, where unemployment is much higher, landed at the bottom of the index, with scores in the upper 50s and low 60s.

While one measurement can try to capture the nation's economic health, it masks underlying complexities. For example, while improving employment and healthy credit are boosting the national index figure, the national scores in net worth, which measures savings toward retirement, are a drag, with 48 states either in "distressed" or "emergency" territory.

That implies that Americans will have to undergo a sea change in money management in order to create broader economic stability. According to the Commerce Department, the personal savings rate nationwide is a paltry 3.8 percent.

Another challenge that the index faces is defining what constitutes a "normal" or "good" reading on any given indicator, notes Cole.

[Read about Chinese banks moving into the U.S. market.]

"We've gone through over the time periods and done some adjustments of how we measure what our benchmarks are," says Cole. "A good credit score is not the same today as what it was five years ago," he adds by way of example.

That may mean shifts not only in the index, but also in perspective as the economy struggles to right itself. After all, while 6-percent unemployment may have looked disturbing in 2006, it would be a welcome respite from today's jobless rate above 8 percent.

Danielle Kurtzleben is a business and economics reporter for U.S. News & World Report. Connect with her on Twitter at @titonka or via E-mail at dkurtzleben@usnews.com.

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