The Economic Robustness Index was developed by Breaking Metrics as a measure of how strong the economy is at a given month for the average American worker and consumer. Inspired by the “Misery Index,” the Economic Robustness Index is calculated by the following formula:
ERI = (Wage Growth Rate + Personal Savings Rate) – (Inflation Rate + Unemployment Rate)
Why these metrics?
These economic indicators are not meant to measure the health of a business or government – instead, it’s meant to measure how well the average consumer, worker, and family are doing juxtaposed to macroeconomic catalysts.
Positive Index Scores
Higher wage growth and personal savings are direct indicators that consumers are making and growing their money. The higher these rates are, the more likely they offset the negative impacts of factors like inflation.
Negative Index Scores
Inflation / CPI and unemployment are subtracted from positive indicators to yield a final score. Inflation limits the ability to save and unemployment impacts all of the above.
For true “equilibrium”, all factors would equal zero. The closer the score is to zero, the more likely economic conditions are stable and favorable to the average individual.
Deviations away from equilibrium should indicate economic volatility. And I’m sure we can plot the ERI against the S&P 500 and find some correlations in the data. Positive scores mean things are generally “good” for the average consumer or worker – it means their wage growth and savings rate outpace inflation, the cost of borrowing money, and the lack of work. But please note that high swings in one direction are generally bad. Things can be “too good to be true”.
Fast forward to the COVID pandemic, and we can see high volatility – first to the downside in March 2020 because of unemployment and then a huge swing to the upside following stimulus checks which rapidly increased the level of personal savings.
This is a good visual of how reckless money printing creates future consequences for American workers and consumers.
Consider time horizons as well. Consider the psychological impacts of huge swings in the ERI score on the average worker and consumer in such a short amount of time. In just two years, Americans went from lockdowns and stimulus checks to high inflation and major layoffs. We’ve seen swings from positive ERI scores to negative in short time horizons before, but not at the variance seen between 2020 and 2022.
I welcome constructive feedback on my twitter account @breakingmetrics