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The Misery Index

Written by Jeff Thredgold, President, Thredgold Economic Associates

October 18, 2011

One of the major political issues that greatly impacted results of U.S. presidential elections during 1976 and 1980 was frequent reference to “the misery index.” This so-called “index” was simply the sum of the nation’s most recent unemployment rate and the nation’s consumer price index for the most recent 12-month period. This combination was a simple way to measure the level of “pain” or “misery” of the American people when it came to the overall level of joblessness and the loss of purchasing power due to rising inflation.

The misery index was first made politically newsworthy by Democratic Presidential candidate Jimmy Carter in 1976. During the Presidential election of that year, Mr. Carter constantly attacked President Gerald Ford for his mishandling of the American economy.

Candidate Carter frequently noted during the campaign that the misery index was in the mid-teens, as compared to much lower levels during the 1950s, 1960s, and early 1970s. Mr. Carter’s criticism of President Ford’s economic mismanagement was effective, helping him defeat the incumbent Republican president during the November 1976 election.

“What goes around …”
                   … comes around”
During the 1980 Presidential campaign four years later, Republican candidate Ronald Reagan constantly made reference to President Carter’s economic failings—as measured by Carter’s misery index.

By November 1980, the misery index had moved even higher, with several monthly measurements above 20. Candidate Reagan’s constant battering of President Carter with his own index turned out to be effective as Reagan handily defeated the incumbent Democratic president.

References to the misery index have clearly waned in recent years, although it remains a reasonable—if simplistic—measure of the American consumer’s economic well being. As the chart shows, the United States made enormous progress in reducing this particular measure of consumer pain, especially during the decade of the 1990s.

Misery IndexThe Numbers
On the employment side of the equation, impressive U.S. economic growth and resultant strong job creation during much of the past 15 years led the nation’s unemployment rate to average 4.1 percent during calendar years 1999 and 2000, its lowest annual average in 30 years. The nation’s unemployment rate actually fell slightly below 4.0 percent during various months in 2000, the lowest monthly rate since January 1970. While true, one actually has to go back to the mid-1950s to find a peacetime unemployment rate as low as 3.9 percent.

Later on, the nation’s unemployment rate again declined from the near 6.0 percent average following the mild 2000–2001 recession. The 4.6 percent average in 2006 was its lowest average level in five years. 

The unemployment rate has, unfortunately, moved sharply higher in recent years as a result of the Great Recession, which ran from December 2007 through June 2009.  Despite massive amounts of fiscal and monetary stimulus, the unemployment rate has averaged 9.0 percent during the past three years. 

The rate has been at 9.1 percent during the past three months.  Most forecasts have the rate falling very slowly during the next few years, with an unemployment rate of perhaps 8.5 percent - 8.8 percent on Election Day in November 2012.  As we have noted frequently, no American President since the late 1930s has served a second four-year term in office when the unemployment rate was above 7.2 percent…a period of 75 years. 

On the inflation side, pressures were quite modest  in the first decade of the 21st century due to (1) fierce domestic and global competition in nearly every major industry; (2) more aggressive actions by consumers to resist price increases; (3) more effective corporate utilization of technology; and (4) the inflation-fighting nature of the Internet.

The escalation of numerous commodity prices during the 2004 to mid-2006 period led inflation pressures higher.  Global prices for oil, steel, copper, lead, aluminum, and the like, tied in part to sharply rising demand from China and India, led overall inflation pressures higher before easing in late 2006.  Such upward pressure on commodity prices was a key ingredient in the Federal Reserve’s elongated monetary tightening program of June 2004 through June 2006.

More recently, consumer prices have been volatile as commodity prices rose and fell, impacted by serious hits to the domestic and global economy.  Volatility has ranged from the alarming 4.1 percent CPI rise in 2007 to the miniscule 0.1 percent rise the following year.

Consumer prices in 2011 are expected to rise 3.4 percent - 3.7 percent, following a 1.5 percent rise in 2010 and a 2.7 percent rise in 2009.  Most forecasts for consumer inflation in 2012 are near 2.2 percent.

From Here?
One might assume a very slow and consistent decline in the nation’s unemployment rate during the next few years, barring another painful recession.  The inflation view is muddied, with massive and unprecedented monetary stimulus leading many to fear a sharp rise in inflation in coming years. 

Making forecasting more challenging are those seasoned forecasters who actually see a Japanese-style deflation about to emerge, noting that when Japan’s housing and asset bubble burst in the early 1990s, that island nation entered eight consecutive years of deflation.

The misery index is still relevant today, given its pure simplicity and the ease of telling a story of consumer “misery.”  The misery index will enter the history books as an interesting political footnote.


Much of this text was from
econAmerica by Jeff Thredgold,
released by major publisher
Wiley & Sons in 2007

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Vectra Bank Expert Jeff Thredgold