In a sign that the worst of the financial recession is behind us, Americans reportedly are enjoying their highest levels of personal satisfaction since the fourth quarter of 2006, according to the second quarter 2017 results from the American Institute of CPAs’ "Personal Financial Satisfaction Index" (PFSi).
Used as a quarterly economic gauge that measures the personal financial standing of a typical American, the PFSi is based on the difference between the “Personal Financial Pleasure Index” and the “Personal Financial Pain Index.” Pleasure factors include the AICPA’s "PFS 750 Market Index," comprised of the 750 largest companies by market capitalization trading on the U.S. market, excluding mutual funds and ETFs. Additional components are the AICPA’s "CPA Outlook Index," as well as real home equity per capita and job openings per capita. Pain factors include inflation, personal taxes, loan delinquencies and underemployment.
The Q2 PFSi measured 24.1, a 7.6-point increase from the previous quarter. The increase was due to an uptick in the pleasure index of 1.4 points, and a 6.2-point decrease in the pain index. A positive reading indicates that Americans are feeling more financial pleasure than pain.
AICPA notes that the 10-year high was driven primarily by record highs in the PFS 750 Market Index and job openings per capita, as well as a significant decrease in the inflation measure from the prior quarter.
The PFS 750 Market Index has been the biggest contributor to the Pleasure Index for several years, the report notes. Compared to the prior quarter, the information technology industry saw the strongest gains followed by consumer discretionary and health care, while energy and telecom experienced losses.
Also contributing to the overall improvement in the PFSi, all four factors of the pain index decreased from the previous quarter, driven largely by a 16.5-point drop in the inflation index, the most volatile factor in the PFSi.
The report observes that the Q2 inflation index, which preceded the Federal Reserve’s June announcement that the target interest rate will rise, has been held down in recent months by a price war in the wireless cell phone industry and falling prescription drug prices.
Despite this optimism, AICPA experts warn that Americans should not take their eye off the ball. “In conversations with our clients, we’ve been telling them to be aware of the long-term trend. People naturally overweigh the current situation and forget that it is part of a cycle,” says David Stolz, CPA/PFS and member of the AICPA PFS Credential Committee. “Americans shouldn’t let their present situation allow them to drift from their plan of reducing debt and adding to their savings. It’s always wise to save some acorns in the summer, because we know eventually winter is coming.”
