An increase in job openings and a rise in home equity values, coupled with continued reductions in loan delinquencies resulted in the most positive financial outlook for the average American since the third quarter of 2007.
The Q2 2015 PFSi index measured 15.0, representing a 1.9 point increase from the prior quarter and an 18.2 point increase from one year ago. Inflation, now registering at historically-low levels, was also a contributing factor in the PFSi increase from the previous quarter. In fact, the biggest cause for the increase year-over-year is the sharp reduction in the rate of inflation driven in part by falling oil prices which trickles down into the cost of many of the goods Americans consume.
Additionally, the U.S. housing market is slowly returning to pre-recession levels. This is captured in the Personal Financial Pleasure Index as gains in real home equity per capita which is largely the result of increases in the market value of homes, with many U.S. cities continuing their slow but steady rebound. Another large contributor to the rise in the PFSi is the PFS 750 Market Index. The index has set new highs in the past year, although it was lower this quarter than in than first quarter.
While the second quarter represents a post-recession high for the PFSi, the quarterly increase was the smallest in the past four quarters, and represents a slight slowing of momentum.
“The PFSi is making slow, but steady progress further into positive territory in 2015 which is what Americans have been feeling in their personal financial situations,” stated Bob Fay, member of the AICPA’s National Accreditation Commission. “While potentially worrisome international news has dominated recent economic headlines in the U.S. Greece’s protracted debt negotiations with Europe, uncertainty with the Chinese stock market there has been limited impact to date on the PFSi and therefore on the financial standing of the average American.”
The driving factor in the rise of the PFSi is the reduction in the Personal Financial Pain Index by 1.6 points. The continued easing of Pain Index factors has driven increases in Americans’ overall financial satisfaction, while the Pleasure Index largely held steady.
“The low inflation rate since the recession held back everything from mortgage rates to the price of a gallon of milk. With the Fed signaling that they are likely to raise interest rates before the end of the year, Americans should pay close attention, review their financial plans and consider their options. If increases in consumer prices aren’t coupled with wage increases, Americans should be prepared to feel some financial pain,” Fay added.
The PFSi weighs a variety of economic factors to calculate the financial standing of a typical American. It is the result of calculating the difference between the Personal Financial Pleasure Index and the Personal Financial Pain Index. The PFSi, calculated as the Personal Financial Pleasure Index minus the Personal Financial Pain Index represents the financial standing of a typical American, uses both proprietary and normalized official U.S. Government data.
Pleasure factors include the proprietary PFS 750 Market Index, comprised of the 750 largest companies by market capitalization trading on the U.S. markets, excluding ADRs, mutual funds and ETFs. The other components are the AICPA’s CPA Outlook Index, Real Home Equity Per Capita and Job Openings Per Capita. Pain factors include inflation, personal taxes, loan delinquencies and underemployment.
For more information on the PFSi, head to the AICPA's site here.