What is the Economic Stress Index?
The Economic Stress Index gives the public, policy makers and business people a broad view of the state of the U.S. economy. The higher the number, the worse the economy is.
What stats are used for the ESI?
The index uses three economic numbers:
1) The Underemployment Rate (U-6); which is the broadest view of the employment situation. The U-6 counts the regular unemployed (known as the official Unemployment Rate or U-3), plus those marginally attached to the workforce/halfway looking for jobs, plus those who have part time jobs because they can’t find full time jobs due to the state of the economy. The Index uses the a rolling 3-month, NSA average of the U-6.
2) Change in the GDP (Gross Domestic Product). The year-over-year percent change in economic growth or contraction.
3) Change in Median Household Income. This change in income to American Households year over year.
Why does the Index use these three data points?
These three statistics provide the broadest view of the economic situation, because while GDP reflects overall economic activity, employment is a lagging indicator. Household Income however may change more rapidly or slowly than the employment situation or the state of economic growth.
How are the stats added up?
With the understanding that the higher the index the worse the economy is, let’s take 2008 as an example: The Underemployment Rate for the year was 10.5%. Add to it the -0.3% drop in GDP in 2008 and add also the 3.6% that income fell. All three stats were negative/bad so it adds to the Index and thus generated an Economic Stress Index of 14.4 (10.5 + 0.3 + 3.6 = 14.4)
In a year that the GDP and/or Household Income are a positive, it reduces the Economic Stress Index such as 1998: The Underemployment Rate was 8 percent, subtract 4.4 for the GDP growth, and subtract another 3.5 with which income rose, and the Economic Stress Index was 0.1 for 1998. (8 – 4.4 – 3.5 = 0.1)
Two important notes:
Before 1994, the Bureau of Labor Statistics used Unemployment series U-1 through U-7, while today it uses only U-1 through U-6. The Stress Index uses U-7 for the pre-1994 years. While not measured exactly the same way, it is still the most identical to the U-6.
Second Note: Because the Census releases only annual Household Income data and only in the September of the following year, The Economic Stress Index utilizes the year-over-year change in wages and total employment - in a three month moving average - to estimate the Household Income for the monthly ESI report. Once the Census releases its annual number, the annual ESI numbers gets updated as well.
When does the Economic Stress Index get updated?
The Index is updated once a month after the jobs report. However, the annual data is updated after the census releases Household Income data and also after GDP numbers are corrected every few years.
Where can one get in contact with the Stress Index staff?
The Economic Stress Index was created by Yossi Gestetner.