Updated from Wednesday, April 8The state of the consumer is getting worse, which spells more bad news for struggling banks and other financial companies set to begin reporting earnings next week. While some Wall Street optimists were hoping that the first quarter would start to show signs of recovery, it is clear that mounting job losses and dwindling confidence in the economy took a toll on consumers during the first three months of 2009. The unemployment rate soared to its highest levels in 26 years, reaching 8.5% during the quarter as businesses downsized to navigate through the environment. As more people lost their jobs, many found it harder to pay their bills and spending dropped as consumers looked to shore up their finances. Consumer borrowing, on a seasonally adjusted basis, fell 3.5% in the month of February to $2.56 trillion, according to the latest economic data available from the Federal Reserve. Earnings at the largest consumer-oriented financial companies will reflect their customers' troubles. Banks including Bank of America ( BAC) and JPMorgan Chase ( JPM) are expected to post sharply lower profits vs. the year-ago period. "I definitely think things are getting worse and that's echoed in continued in unemployment and the savings rate," which is now positive, says Dean Barber of Barber Financial Group in Lenexa, Kan. "Consumer debt is as big a problem as corporate and government debt." Barber says "the degree of uncertainty surrounding our economy is also weighing on the consumer." Companies looked to save money by tightening worker compensation, by reducing or eliminating pay raises and bonuses, and in some cases implementing salary reductions. The moves resulted in making it harder for consumers to pay down excessive debt.