Signs of financial pressure have eased in Australia during the first quarter of the year with further signs of economic conditions stabilising.

According to findings from Dun & Bradstreet’s new Consumer Financial Stress Index, the index has fallen to 21.2 in March 2013 after spiking at 24.9 following the Christmas period when household finances are often stretched and personal debts mount.

The index shows that the level of financial stress deteriorated in late 2010 and worsened through to the early part of 2012. At this time, consumer sentiment was weak, the number of individuals with impaired credit that were seeking additional credit was on the rise and house prices were starting to fall. In addition, concerns were being expressed about the risks to the Australian economy from the problems in Europe and a slowdown in China.

The level of consumer stress has been broadly stable since 2012, however it has stabilised at a relatively high level given the three and a half year history for the data series.

The report suggests the improvement reflects the more settled financial position of many consumers following a period of financial caution during late 2012, and the positive effect of low interest rates.

Dun & Bradstreet CEO, Gareth Jones said the recent drop in the Consumer Financial Stress Index builds on an increasing number of positive consumer and economic indicators seen in the early stages of 2013.

“The relative easing of consumer financial stress levels is another piece in the economy’s recovery puzzle,” he said.

“During the latter part of last year and into 2013 we saw consumers demonstrating financial conservatism as they paid down their debts, reduced their use of credit and boosted savings. This appears to have strengthened the financial position of many consumers, with reduced financial stress at the beginning of this year matching improvements in most consumer confidence measures.

“The key word we’re now looking for is ‘sustained’. The economy has shown encouraging signs, however this needs to be sustained for this optimism to translate into meaningful economic growth. One of the threats to sustained consumer confidence comes from job security, with the unemployment rate increasing during March to 5.8 per cent and suggestions Australia may be witnessing a rising class of ‘working poor’.”

Despite the overall easing in financial stress levels, D&B’s state and territory analysis shows consumers are experiencing vastly different conditions depending on where they live.

Consumers in New South Wales and Victoria have been experiencing sustained, high levels of financial stress during 2012 and into the early stages of 2013. High house prices, and consequently high levels of debt, appear to be major factors in the elevated level of financial stress in those states.

Unsurprisingly, the level of financial stress is low in Western Australia; a reflection of the state’s high wages growth and ongoing low unemployment. The potential slowing in the mining sector investment boom has, however, resulted a steady deterioration in consumer financial stress levels since January 2012.

“In late 2012 and early 2013, there was a worrying rise in financial stress which, if unchecked, risked undermining the signs of solid consumer demand in the economy,” said Stephen Koukoulas, economic adviser to Dun & Bradstreet.

“The slight easing in consumer financial stress is a welcome sign and fits with recent increase in retail spending. The current very low level of interest rates is likely to be filtering through to consumer financial well-being through lower debt repayments and faster repayment of mortgages and other debt.

“There are risks ahead for consumers, however, in the slight rise in the unemployment rate, signs that the house price pick-up might be cooling and recent volatility in share prices, which could see financial stress levels remain elevated.”