For years I've noticed that Gross Domestic Product (GDP) does a poor job reflecting the economic health of the average American family.  Since government spending is included in GDP, the government can borrow or create an endless quantity of money and no matter how poorly these dollars are spent, GDP will rise.  Moreover, the GDP growth rate is a "real" figure, meaning it includes the impact of inflation.  Since many analysts feel official inflation numbers are under-reported (and I happen to agree) this is a second reason to dismiss GDP as an accurate measure of economic well-being.

To more accurately measure the month-to-month improvement or deterioration in the economic health of the middle-class, I created the Reinwasser Middle-Class Index (RMCI).  The RMCI includes the following 10 indicators:
  1. Gallup U.S. Job Creation Index - Jobs
  2. Gallup Underemployment Index* - Jobs
  3. 30 Year Conventional Mortgage Rate - Housing
  4. Zillow Home Value Index, Single Family Homes - Housing
  5. S&P 500 - Wealth & Spending
  6. Gallup Lower & Middle-Income Consumer Spending, Adjusted for Inflation** - Wealth & Spending
  7. Conference Board Consumer Confidence Index - Confidence
  8. NFIB Small Business Index - Confidence
  9. Change in Consumer Prices Relative to Change in Average Hourly Earnings - Inflation
  10. U.S. Dollar Index - Inflation
As you can see, the RMCI captures data in the Jobs, Housing, Wealth &  Spending, Confidence and Inflation categories.  My preference is for indicators that can not be manipulated by the hand of government, which is why the civilian participation rate was selected instead of the unemployment rate.  While there are countless combinations I could have chosen to create the RMCI, I feel these 10 indicators are indicative of how the average family feels, financially and economically. 

Excluding #9 above, each month's data point is compared to the average from the prior four months.  If the current month's number is worse than the four-month average, that indicator is scored -1.  If it is an improvement, then the indicator is scored +1.  Therefore, the best reading possible is +10 and the worst is -10. 

It's important to note that the RMCI reflects the current economic trend of the middle-class and not necessarily the economic health of the average family (the 10 individual indicators do reflect economic health).  For instance, if the Zillow Home Value Index increases by .5% next month, that would be counted as +1 by the RMCI.  However, no one would argue that just because April housing values increased slightly, the housing market is healthy.

March RMCI Results

The  RMCI fell to -2 in March from 0 in February. 

Positive categories:
  • Gallup U.S. Job Creation Index
  • S&P 500 Index
  • Real Retail Food and Service Sales
  • Conference Board Consumer Confidence Index
Negative categories:
  • Civilian Participation Rate
  • 30 Year Conventional Mortgage Rate
  • Zillow Home Value Index, Single Family Homes
  • NFIB Small Business Index
  • Change in Consumer Prices Relative to Change in Average Hourly Earnings
  • U.S. Dollar Index
The March RMCI indicates that the economic health of the middle-class deteriorated in March due in no small part to rising inflation and falling home values.  Wealth & Spending showed resiliency but not enough to produce a positive overall trend.


*Originally this category was the Participation Rate - changed in May 2011.
**Originally this category was Real Retail and Food Service Sales - changed in May 2011.