As major banks update their forecasts for the second half of the year, Wall Street's recession fears begin to subside; however, the financial pressure on ordinary consumers is growing.

LegalShield, a legal service company that provides legal advice, attorneys, protection, and representation services for Americans, has released its monthly Consumer Stress Legal Index (CSLI).

The company stated that the index rose by 5.8 points in July to 67.6, the highest level since November 2020 and the largest single-month increase in over 20 years.

The day before the index was released, Goldman Sachs revised down its probability forecast for a U.S. economic recession from 25% to 20%.

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Matt Layton, Senior Vice President of Consumer Analytics at LegalShield, said in an interview, "The situation is not as optimistic as the macro-level indicators lead us to believe."

"We certainly are not predicting a recession, but what we can say is that over the past few years, financial stress has been accumulating.

The July surge tells a story of a kitchen-table economy, in stark contrast to key positive macro indicators, including a decrease in producer and consumer inflation, and stock market trading near historical highs."

LegalShield's CSLI is based on a dataset of over 35 million consumer legal aid requests since 2002.

The index is constructed based on three sub-indices, tracking legal aid calls related to bankruptcy, foreclosure, and consumer finance.

Looking at the broader index components, the bankruptcy sub-index rose by 6.1 points to 35.6, the highest level since February 2020 and the largest single-month increase since July of that year.

Meanwhile, the foreclosure sub-index rose by 6.0 points to 42.3, marking the largest sequential increase since November 2020 and the highest level since December of last year.

Although the level of consumer economic stress is still far below the peak during the Great Financial Crisis of 2008, Layton said that the growth rate is a major concern.

He added that preliminary data shows that the increase in July will not be an anomaly.

He said, "The data we're seeing in early August indicates that consumer stress is consistent with the levels we reported in July."

While Wall Street's fears of a recession have receded, with expectations that the Federal Reserve will begin cutting interest rates in September, Layton said he does not expect this to have the same impact on ordinary consumers.

Layton noted that although inflationary pressures have fallen from the highs of 2022, prices are still rising, just not accelerating.

Layton said, "The rise in inflation rates over the years in our data is indeed starting to show a compounding effect."

"I do think that future interest rate cuts will have a positive impact on the financial stress we report in the index.

But likewise, a lot has to go through the system before the cuts reach the everyday lives and people paying their bills."

The increase in consumer financial stress may not bode well for the gold market, as gold prices hover near historical highs of over $2,500 per ounce.

LegalShield's data shows a negative correlation between high stress levels and gold prices.

This view aligns with analysts' perspectives.

Although gold is a major safe-haven asset, it could still face difficulties in the early throes of a recession, as investors sell liquid assets to raise funds.

The increase in consumer stress has also affected the political landscape in the United States.

Layton noted that LegalShield's data shows that when consumer financial stress is above the national average, the Republican Party is favored more in battleground states.

When stress levels are below the national average, the Democratic Party is favored more.

After being 5.0 points below the national average in June, the CSLI in battleground states (including Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania, and Wisconsin) rose by 10.5 points to 67.3 points, 0.3 points below the national average.

Layton said, "July is the biggest increase in stress in battleground states since we started keeping data 22 years ago."

"Our data does not depend on feelings about who is in power, who is running for office, or who might win in November.

The legal needs of ordinary Americans are related to voting behavior in the past five elections, based on their contacts with our provider attorneys."