Consumers are exhibiting signs of financial fatigue from the longest and slowest economic recovery since the Great Depression.

The Money Anxiety Index shows that in the first quarter of 2014 consumers are exhibiting signs of financial fatigue from the longest and slowest economic recovery since the Great Depression.  In the first quarter of 2014, the Money Anxiety Index remained mostly flat at 78.7 after nearly a year of constant improvement indicating that consumers are starting to feel the effects of a prolonged financial struggle.

During 2013, the Money Anxiety Index declined 14.8 points exhibiting substantial improvement in the level of consumer financial anxiety.  However, in the first three months of 2014, the index remained flat at 78.7 indicating that consumers are showing signs of concern over the prospects of economic recovery.  The financial fatigue consumers are exhibiting is mostly related to the prolonged economic recovery, which will enter its sixth year in couple of months.  The Great Recession officially ended in June of 2009 initiating the longest economic recovery since the Great Depression. 

Moreover, the current economic recovery produced the lowest and longest Fed funds rate of 0-0.25%, starting in December of 2008 – over six years ago.  The low and prolonged period of virtually zero Fed funds rate is contributing to consumers’ financial fatigue because they are seeing their $10 trillion in bank deposits gradually eroding by inflation.

It’s possible that some of the factors contributing to the abrupt change in the level of consumers’ money anxiety are related to the severe weather conditions much of the country experienced during the first three months of this year. Nevertheless, the constant economic concern and financial struggle is starting to impact consumers’ level of financial anxiety.

Saying yes to spur-of-the-moment spending gets a little more complicated when you factor in a tough economy, however. "Through the recession and a few subsequent years, the level of money anxiety was high and that corresponds with certain behaviors. Namely, the majority of people didn't buy a new car or go on a family vacation, or buy new appliances," says Dan Geller, behavioral economist and author of the "Money Anxiety Book."

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Consumers borrowed an additional $18.9 billion in February, over January 2014, reflecting a decline in the level of money anxiety due to improving economy.

Consumers increased their personal debt by $18.9 billion in February for items such as cars, mobile homes, boats, trailers and education according to the latest Consumer Credit Report (G-19) released this week by the Federal Reserve.  The additional debt amount reflects only personal loans, and does not included mortgages or credit card debt.  The increase in personal-loan demand is likely to push loan and deposit rates up in the second half of this year.

As of February 2014, nonrevolving credit, which includes personal loans but no mortgages, stands at $2,275.3 billion.  Revolving outstanding credit, consisting of credit cards debt, stands at $864.2 billion, for a total outstanding credit of nearly $3.1 trillion. The total outstanding credit originated from banks, credit unions, financial companies and the federal government.

The increase in personal borrowing is a reflection of a decrease in the level of the Money Anxiety Index, which decreased 13.6 points since January of 2013, when it stood at 92.4, to 78.8 in February of 2014.  The decrease in the level of consumer financial anxiety shows that consumers are more optimistic about their finances, and are more likely to take on loans to finance purchases.

Consumers borrow more and spend more as their level of money anxiety subsides.  The Money Anxiety book demonstrates how consumers’ spending declined during the Great Recession, when the level of money anxiety was extremely high.  However, since January of 2013, the level of consumer financial anxiety subsided, and consumers increased their spending including purchases of durable goods that are often financed through loans and credit.

Consumers have mixed feelings about the Strength of the recovery.
The preliminary Money Anxiety Index stands at 78.7 – the same as last month, but 9.8 points lower than the same month last year.  A flat index means that consumers have mixed feeling about the strength of the recovery.
The Money Anxiety Index has been on a general downwards trend in the past 12 months.  The occasional spikes in the Money Anxiety Index trend line point to uneasiness among consumers about the strength and longevity of the economic recovery.