Rise in payroll tax takes bite out of household budgets

Metro Atlantans found it harder to live within their means in the first quarter, partly because Uncle Sam left them with less money in their paycheck.

Higher Social Security payroll taxes that went into effect in January gave many consumers less money to cover regular household bills and to sock away for a rainy day, according to CredAbility, the Atlanta-based consumer credit counseling service.

CredAbility released its quarterly “consumer distress index” Tuesday, and it showed metro Atlantans, along with much of the nation, continued to struggle making ends meet despite signs that the economy is improving and more people are finding jobs.

After four quarters of gains reflected in housing affordability, finding employment, managing credit, growing net worth and sticking with household budgets, metro Atlanta showed signs of trouble. The area’s distress index score dropped a point to 65.8 out of 100. Anything below 70 indicates consumers overall are “financially unstable.”

While the metro score has been below 70 for a while, it had been trending upward. The national index score was 70.7, which was down a point from the previous quarter.

“The jump in Social Security taxes in January forced people to save and spend less compared to the previous quarter,” said Phil Baldwin, CredAbility’s chief executive officer.

The lack of cash flow had the biggest impact on household budgets, but because metro Atlantans are gaining more control in managing credit card debt and mortgage delinquencies, they have been doing a better job meeting financial obligations.

“People have dealt with overextended credit very aggressively over the last few years,” Baldwin said. The mortgage delinquency rate locally was 5.6 percent in the first quarter, compared with 6.6 percent in the year-ago period.

Fewer foreclosures, rising home equity and more favorable lending rates also are working in consumers’ favor.

Metro Atlanta is also seeing more home construction and job growth. The metro area ranked No. 4 in the nation in job growth over the past 12 months behind Houston, Dallas and San Francisco, CredAbility said.

But metro Atlantans and the rest of the state are not out of the woods. CredAbility said that based on the “consumer distress index” factors, Georgia is still the third-most challenged state economically. It is behind Nevada and Mississippi.

Georgia’s relative position has been falling — and it has deteriorated even when the economy was doing well.

Back in 1989, the CredAbility “consumer distress index” survey ranked Georgia as 13th worst — that is, a dozen other states had more distress signals. By 1999 — after a decade of sometimes spectacular growth — Georgia was 11th worst.

In 2005, with the housing market roaring and unemployment relatively modest, Georgia was eighth worst nationally. The plunge of the economy after that — the toxic mix of layoffs, foreclosures and bankruptcies — accelerated that trend.

CredAbility said it is still counseling many people trying to avoid bankruptcy and foreclosure. Its clients average a negative cash flow of $1,200 a month, and much of the debt is due to credit cards.

The biggest concern in the years ahead will be consumers retiring with little or no savings, partly because they are landing jobs that pay less than previous jobs and because many have tapped retirement savings, such as 401(k ) plans, to make ends meet during the economic downturn.

“Yes, it does look like the economy is improving,” Baldwin said. “But it’s still early in the recovery, and we should be cautious and prudent with our personal finances.”

CredAbility still advises consumers to have a rainy-day fund that can cover at least three months of regular recurring bills. “And spend less than you make,” Baldwin said. “That’s always a good idea.”

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Staff writer Michael E. Kanell contributed to this article.

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