Summary

The lives of American families are, at any one moment, in flux in a number of ways. Their economic lives are no exception. They wonder about next jobs as they collect paychecks from their employer. They shop for groceries as they balance saving for tomorrow with paying back yesterday’s bills. A measure of net changes in economic wellbeing, the Family Economic Security Index summarizes motion across a number of economic dimensions. Its four categories – the strength of the job market, real income, the affordability of necessities, and the stability of personal finances – each represent one facet of how American families “live the economy.”

Each category is a composite of a number of statistical indicators of its concept. As would any index, the Family Economic Security Index needs to measure fluctuations in all of its many components in terms of one underlying unit. It does this with percentage points of change.

Even if any statistical index is an imperfect teller of any one person’s story, every family’s economic story is etched into the Family Economic Security Index in some way. The parents of a suburban family of four may both benefit from the tightness of the labor market reflected in lower unemployment. But they may also worry about the rise in the price of the gas they need to get to work relative to the wages they earn at work, which is one of the index’s ten subcomponents. If they’re looking to buy a house, they may also suffer from the rises in mortgage rates that increase the sub-index on housing costs. The retired grandparents of the children experience this economy differently. The erosion of the purchasing power of the assets they rely on in retirement by inflation gives them anxiety about their financial security. Their woes appear as declines in the sub-index that tracks real income from dividends and interest.

Below are details on the calculations and the sources of data that are inputs into the Family Economic Security Index. All data are all publicly available and considered the best-in-class source of data on the subject. The index will be updated as soon as new data on any one of its many inputs become available.

Technical Methodology

The Family Economic Security Index minimizes the influence of outliers on the index as a whole through a two-step process. First, take the square root of the absolute value of the percentage points of change since January 2021; the percentage point is really the underlying unit of the index. Second, multiply by a negative 1 if the original unit value was negative. The second of the two steps restores the directionality of the sign that is lost from taking the absolute value before performing the square root. In practical terms, this has the effect of reducing the influence of economic fluctuations that are historical aberrations, like today’s increases in the consumer price index.

The outputs from this procedure, the unit of which is the percentage point, become the main inputs that then create variation in the sub-indices and then the index. Each sub-index, by construction, starts at 10 in January of 2021. The values from our first step are added or subtracted from the base of 10 for each sub-index in any one month. The values for the ten sub-indices are then added up to generate an overall reading for the Family Economic Security Index in the month. Because each sub-index starts at 10 in January of 2021, by construction, the index as a whole starts at 100 in January of 2021. Details on data sources for each sub-index are below.

Job Market

• Overall Unemployment Rate. 100 plus or minus change in rate X 10. Lower rate raises security
  Source: Bureau of Labor Statistics monthly report on the Employment Situation.
• Black Unemployment Rate. Same as overall rate. Included to measure security of historically vulnerable groups.
  Source: Bureau of Labor Statistics monthly report on the Employment Situation
• Labor Force Participation 100 plus or minus change in rate x 10. Higher participation raises security.
  Source: Bureau of Labor Statistics monthly report on the Employment Situation

Affordability of Necessities

• Price of Food Consumed at Home Relative to Average Hourly Earnings 100 plus or minus percentage point change in ratio x 10. Lower relative food costs raise the index. Values relative to January 2021.
  Source: Bureau of Labor Statistics Report on Consumer Prices
• Price of Motor Fuel Relative to AHE. Same as above.
  Source: Bureau of Labor Statistics Report on Consumer Prices
• Housing Costs – average of rents and new home affordability. The rent and home price measures are averaged to produce the Housing Cost Average. Values relative to January 2021.
• Rents –Marginal Rents / Average Hourly Earnings
  Source: Penn State / ACY Alternative Inflation Index; BLS monthly report on the Employment Situation
• Homes – Average Home Price x 30-year Mortgage Rate / Per Capita Disposable Personal Income
  Sources: National Association of Homebuilders / Wells Fargo; Freddie Mac; Bureau of Economic Analysis

Real Income

• Average Hourly Earnings / CPI x 10 (relative to January 2021)
  Source: Bureau of Labor Statistics monthly report on Employment Situation
• Percent change in real per capita disposable personal income x 10 (relative to January 2021)
  Source: Bureau of Economic Analysis monthly report on Personal Income

Personal Finances / Financial Cushion

• Debt Service as percent of real disposable personal income (10 x percentage change since Jan 2021)
  Source: Board of Governors of the Federal Reserve.
• Real Income from Assets (10 x percent change since Jan 2021)
  Source: Bureau of Economic Analysis monthly report on Personal Income