Methodology

Philosophy

Each indicator is weighted by how much the median American household is actually exposed to that economic factor. Calibration sources include the Federal Reserve's 2022 Survey of Consumer Finances and the BLS Consumer Expenditure Survey.

The index prioritizes cost of living (25%), employment & income (30%), and housing (25%) because these factors dominate household budgets and wealth. Financial markets and sentiment receive lower weight (10% each) because they affect the median household indirectly.

Components

Normalization

For each series at month t:

1. Compute the trailing value — level for unemployment, mortgage rate, and sentiment; 12-month percentage change for everything else.
2. Compute a z-score: z = (value - mean) / stddev where mean and standard deviation are computed over the full history of each transformed series.
3. Invert where indicated: z = -z for unemployment, mortgage rate, and CPI sub-indices (higher is worse for households).
4. Weighted sum of all component z-scores.
5. Rescale to a fixed 0–100 scale where 50 equals the historical average, clamped at boundaries.

Data Sources

All data is sourced from the Federal Reserve Economic Data (FRED) API, maintained by the Federal Reserve Bank of St. Louis. Data is fetched and cached monthly. The index history begins January 1988 (the binding constraint being the Case-Shiller home price index, which starts in 1987 — plus 12 months for year-over-year calculations). Recession bands use the NBER-based recession indicator (USREC).

Housing Split

Home prices and mortgage rates are split into two pillars with opposite interpretations. Home price appreciation (13%, normal direction) is positive for the ~65% of households who own — the median household holds about 73% of net worth in real estate (SCF 2022). Mortgage rates (12%, inverted) affect affordability for buyers and refinancers — housing is 33.4% of spending (BLS CEX 2024).