Economic Risk Dashboard: A Framework to View the US Economy

We are living in perilous times. Uncertainty is part of life and it is something that we cannot undo because it necessarily requires complete knowledge of the future, which no human being has. Having said that, as the Biblical proverb says, “a prudent person foresees danger and takes precautions [and the] simpleton goes blindly on and suffers the consequences.” Therefore, prudence calls for a framework that may help us discern where we may be in the economic cycle at any given moment

To that end, I developed a dashboard of metrics to give me a sense of the health of the economy. Those metrics, I believe, are foundational to economic activity. What follows are the indicators I am currently monitoring.

Household Health:

• Unemployment Rate – the percentage of unemployed individuals within the labor force.

Credit Markets Health:

• ICE BofA US High Yield Index Option-Adjusted Spread, ICE BofA US Corporate Index Option-Adjusted Spread, ICE BofA US Corporate Index Option-Adjusted Spread – spreads that measure the difference between an index’s option‑adjusted yield and the spot Treasury curve.

• Bank lending standards based on the Federal Reserve Senior Loan Officer Opinion Survey – covering changes in lending terms and the strength of business and household loan demand.

• Commercial Paper spreads – defined as the difference between the 3-Month Commercial Paper and Federal Funds Rate.

Consumer Confidence Health:

• University of Michigan Consumer Sentiment Index – a monthly survey capturing U.S. consumer confidence.

• Conference Board Consumer Index – measuring consumers’ views of their current financial situation and expectations for the economy over the next six months.

These metrics underpin the components that ultimately form the aggregate economy. An important word of caution: Numerical methods are inherently limited because all require judgment, and irrespective of what we think, they embed some degree of bias. Numbers are facts only in a narrow sense when we are dealing with a one‑dimensional domain. That is not the case when we attempt to understand the multi‑dimensional phenomenon we call economic activity. In that broader context, numbers are judgmental representations of facts.

This is a critical insight. I will write more about that in future posts, but suffice to say for now that numbers do not replace wisdom, knowledge, and understanding, which necessarily require a rigorous philosophical (dare I say metaphysical) view of how life works.