Economic Factors

What does the Index include?

The Index is based on seven equally weighted macroeconomic factors:

Unemployment Rate
The unemployment rate is published monthly by the U.S. Department of Labor's Bureau of Labor Statistics. Improvements in employment levels generally lead to more demand for debt and better ability on the part of debtors to satisfy existing obligations. When unemployment rises, the Index falls.

Federal Funds Rate
The federal funds rate is published monthly by the Federal Reserve. Higher interest rates translate into more opportunities for the ARM industry, particularly because adjustable rate obligations increase with interest rates. Debt buyers in particular have more portfolios of delinquent debt available for purchase when rates are high. As the federal funds rate increases, the Index rises.

Charge-Off Rates
The Federal Reserve requires commercial banks to report charged off loans and leases. Charge-off rates are measured as a percentage of total debt outstanding and disclosed on a quarterly basis. The Index incorporates charge-off rates for all loans and leases, including residential and commercial real estate loans, credit card debt, other consumer loans and commercial loans. When the charge-off rate increases, creditors have more need for ARM services and the Index rises as a result.

Outstanding Consumer Credit
The Federal Reserve reports the amount of outstanding consumer credit on a monthly basis. Outstanding consumer credit includes revolving credit for outstanding credit card balances and non-revolving credit for purchases such as automobiles, entertainment and vacations. More debt generally leads to more opportunities for contingency agencies and more portfolios available for purchase by debt buyers. Increases in the amount of outstanding consumer credit therefore cause the Index to rise. The KGI includes the amount of consumer credit that is initially announced (not revised) by the Federal Reserve on a monthly basis.

Market Capitalization of Public Stocks
The total market capitalization of public stocks in the ARM industry can be calculated with available financial information. Although many publicly traded companies compete in this industry, its overall performance is best reflected by Asset Acceptance, NCO Group, Portfolio Recovery Associates, Encore Capital, Asta Funding and First City Financial. Changes in the total market capitalization of these six companies broadly reflect the market's expectations about the industry's future financial performance. So increases in this figure also cause the Index to rise.

Bankruptcy Filings
Every quarter, the Administrative Office of the U.S. Courts reports the total number of bankruptcy filings throughout the country. Increases in the number of bankruptcy filings present more challenges for ARM companies because fewer people are legally required to pay their debts. As a result, increases in the number of bankruptcy filings cause the Index to fall.

Consumer Price Index
The U.S. Department of Labor releases information about the Consumer Price Index (CPI) every month. The CPI measures monthly changes in the prices of goods and services paid by consumers. When prices increase, consumers are more likely to assume debt, ultimately creating more demand for ARM services. Increases in the CPI therefore cause the Index to rise.