American households feeling less financially stressed

Are you feeling less financially stressed? Maybe you should be.

According to PNC Financial Group’s latest Household Economic Stress Index (HESI), financial stress faced by U.S. households is moderating. The index, which measures the amount of stress household budgets are feeling in response to changing macroeconomic conditions, declined to 2.2 percentage points in Q4 of 2014, down from 2.7 in Q3.

PNC Financial cites a variety of factors contributing to the decline in financial stress. Easing inflation pressures due to lower gasoline prices, declining unemployment, and rising home values all helped ease household financial pressures. It’s a trend Bill Stone, PNC’s Chief Investment Strategist, believes will continue. “It’s likely you’ll see even less stress” in the next reading, he said.

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Despite the positive news, many households are not feeling less financially stressed. “Maybe households aren’t feeling quite as this indicator might suggest, but I think directionally it’s telling you the right thing,” said Stone.

Even though real household incomes have slightly outpaced inflation and the unemployment rate has ticked lower, wage growth has still lagged by some comparisons. “A challenge with the measure is that it’s really using the unemployment rate,” said Stone. “Some would argue the unemployment rate overstates how much better the labor market has gotten.”

Still, the firm’s confidence in the American consumer is strong, despite the poor turnout in the first quarter. “We believe they do show up going forward,” said Stone. “Consumer discretionary area is definitely a place we’re overweight in and we like.”

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