The Wall Street Journal: What you need to know about the Household Economic Stress Index

The PNC U.S. Household Economic Stress Index is something that smart investors might want to watch. As the name suggests, it is a measure of how stressed U.S. consumers are on an aggregate basis.

“It’s a variation on the misery index,” says Stuart G. Hoffman, senior economic adviser at PNC Financial Services Group

PNC, -1.12%

in Pittsburgh.

The so-called misery index, around since the 1970s, is the percentage inflation rate plus the percentage unemployment rate. Any increase in either adds to the average level of household misery. The PNC stress index, or HESI, brings in another factor. From the sum of the percentage unemployment and inflation rates, it subtracts the percentage move in home prices as measured by the Case-Shiller home-price index.

Real estate is often the largest asset of households, so an increase in home prices indicates a rise in wealth, explains Hoffman. He says the sweet spot is when the stress index is between 0 and 10. The index measured 1.1 in the third quarter, based on estimates of inflation and house prices.

A move above 10 indicates significantly higher inflation, and/or unemployment and possibly falling home prices, all of which would add to stress levels. But if the index moves below zero—which is possible if housing-price increases accelerate from the recent rate of around 6% a year—there could be a different problem.

That could mean the housing market is overheating, he says, something last seen in the bubble before the financial crisis.

Simon Constable is a writer in Edinburgh, Scotland. He can be reached at reports@wsj.com.

The article “What Is the Household Economic Stress Index?” first appeared in The Wall Street Journal.