Financial stress declined by 3.2 points for the American consumer month-over-month, according to LegalShield's Consumer Stress Legal Index. However, the data also revealed rising bankruptcy inquiries, potentially signaling difficulty for the economy going forward.
Matt Layton, LegalShield SVP of Consumer Analytics, joins Yahoo Finance to discuss consumer confidence and what may lie ahead for the broader markets.
When asked about the near-term economic outlook, Layton says: "Our flagship indexes, composed of three individual indices that looks at bankruptcies, consumer finance, and foreclosures. I think the story here is that bankruptcy data. The bankruptcy index increased for the fifth conservative month in a row, and right now it's at its highest level since March of 2020. What's extremely interesting about this is our LegalShield bankruptcy index, actually leads the bankruptcy filings reported by the US Court system by up to two-quarters of six months. So we fully believe the increases we're seeing today are going to be sustained for at least the next six months."
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Editor's note: This article was written by Nicholas Jacobino
Video Transcript
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AKIKO FUJITA: Well, new report from LegalShield points to increased consumer confidence. Overall stress for the American consumer declined more than three points from January's record high according to the firm's latest consumer stress legal index.
But rising bankruptcy inquiries may be signaling a rocky road ahead for the economy. Let's bring in Matt Layton. He's LegalShield SVP of consumer analytics. Matt, it's good to talk to you. Help us make sense of this. On the one hand, you've got consumers who are saying, hey, I feel a little better, but the inquiries point to the fact that things are not that great financially right now.
MATT LAYTON: Sure. And thanks for having me today. But before we dive into the numbers, let's talk a little bit about what the data is that we have and what gives us the ability to see what's coming next. Our data, the LegalShield data, the index data is based on more than 35 million consumer requests for legal services over the last 20 years.
The index examines findings from approximately 150,000 calls per month from consumers seeking legal help in more than 90 different areas of law. That's 7,000 individual requests per day. This provides a unique outlook on consumer actions. They call us to improve their standing, take control of a stressful situation.
And again, these are not opinions or answers to survey questions. People don't call a lawyer for a good time, right? They call a lawyer because they have an issue and they need help. And we found that our data is highly correlated with several key economic indicators that includes The Conference Board's consumer confidence index.
And it also gives us a predictive look out into the future on how consumers will be feeling and behaving two to three months from now. Our volume is such that the trends we get from our members reflect the broader trends of consumers across the country.
AKIKO FUJITA: So Matt, if it is forward looking, what does that data tell you about where things are going two to three months from now?
MATT LAYTON: And I think you certainly hit it right on when you mentioned bankruptcy. Our flagship index is composed of three individual indices that looks at bankruptcies, consumer finance, and foreclosures. And I think the story here is that bankruptcy data, the bankruptcy index increased for the fifth consecutive month in a row. And right now it's at its highest level since March of 2020.
What's extremely interesting about this is that our LegalShield bankruptcy index actually leads the bankruptcy filings reported by the US Court system by up to two quarters or six months. So we fully believe the increases we're seeing today are going to be sustained for at least the next six months.
AKIKO FUJITA: Matt, not sure if you're able to really track by sector or who's actually sort of looking for this legal help as it relates to bankruptcies. But based on the data that you have, where is the most pain being felt right now?
MATT LAYTON: Well, it's interesting, right, because we just saw the, you know, record debt hit 17.5% in the fourth quarter, delinquency rates on credit cards increasing, auto loans hitting their highest level since the Great Recession. And you ask the perfect question, right, so we're seeing the Gen X and millennials that are being hit the hardest on these consumer finance issues. These younger age cohorts many times aren't prepared to weather a financial hit or a stressful period as some of the older more established groups.
And really interesting point that we get when we talk to our provider lawyers across the United States and Canada, there are really three prevailing pressures that they talk most about coming from those Gen X and millennial cohorts. And that's what's driving consumer stress and an uptick in requests for bankruptcies, repossessions, billing disputes. And that's really credit card defaults. Folks are asking-- they're saying, I'm having trouble making my monthly payment and/or which credit card should I pay? Aggressive collections. Should I talk to them? Can I negotiate? What happens if I ignore them? And then just overall, inflation, right? We're hearing life is just more expensive, and for many people, their finances aren't keeping up.
