Banks rely on headline economic statistics to shape strategy, underwriting, and stress testing. But what if those numbers no longer reflect how people actually live?
In a conversation with ProSight, former Comptroller of the Currency Gene Ludwig argues that many federal statistics rely on definitions “created in the 1930s or earlier” and built for a very different labor market. Today’s mix of gig work, contract labor, and part-time employment makes those measures less reliable, he said. Under current unemployment rules, for example, someone who worked just one hour in the past week is counted as employed—even if they are unable to afford basic needs.
Headline wage data can mask real strain. Ludwig, who now leads the industry consulting firm Ludwig Advisors, notes that wage statistics include only full-time workers. Average wages can even rise during recessions because lower-paid workers are often the first to lose jobs. Meanwhile, “real wage” calculations use the Consumer Price Index, which reflects a broad basket of goods—many of them less relevant to lower- and middle-income households. Ludwig’s organization, the Ludwig Institute for Shared Economic Prosperity (LISEP), tracks essentials such as food, housing, healthcare, and transportation through its True Living Cost (TLC) index, which he said has risen faster than CPI. Adjusted that way, real wages for middle America have declined since 2001, he said.
The poverty line may understate pressure. Ludwig said his LISEP team estimates the cost of living for a family of four is closer to $100,000, while achieving a modest standard of living—measured by LISEP’s Minimal Quality of Life index—runs closer to $120,000. For comparison, the Census Bureau’s weighted average official poverty threshold for a family of four in 2024 was $32,130. “The official government poverty line is inadequate anywhere, including in the poorest states,” he said.
More families are living “from debt to debt.” Ludwig argues that the economy’s divide is steeper than headline data imply. “Our data shows a sharper, more vertical K shape: the top is rising, and the bottom is falling,” he said.
This matters for banks. “Borrowers’ real financial stress affects credit risk,” Ludwig said. If headline data obscure actual borrower vulnerability, banks may misjudge risk—particularly among lower-income borrowers who are extremely interest-rate sensitive.
Data gaps create a competitive squeeze. Banks can try to compensate for degraded public data, but collecting national- and MSA-level insight without federal support is difficult. Larger institutions may manage to. Community banks have local knowledge. Midsized banks risk getting squeezed.
Ludwig believes technology can help. “Modern AI tools can help regional and community banks analyze data, understand their markets, and operate efficiently,” he said.
The takeaway: “We can’t make progress unless policymakers confront the real numbers,” Ludwig said.
