The Misery Index has a New Name…

There is actually an economic index named “The Misery Index”.  The aptly named index was created in the 70’s by Chicago economist Robert Barro. It combined the headline unemployment rate and the inflation rate. With all of the recent talk about inflation I thought it would be interesting to see how todays “misery” index stacked up to the 70’s. Its latest reading was 10.9, which is up a shade from its level in mid-2010 but just half its 1980 peak of 22 and below its recent recessionary high water mark of 12.7. There is no doubt that the financial crisis and the great recession were miserable. Even so, inflation remains a shadow of its 1970s self. Thanks to double-digit inflation, the misery index spent an entire decade, between 1973 and 1983, above 12.

A newer more relevant measure of our economic morass now, perhaps, is one derived from the misery index during the 2008 meltdown, household economic stress index. It takes the misery index and subtracts the year-over-year change in house prices; on the logic that changes in the price of most Americans’ most valuable asset is an important factor in their spending.

By that measure the squeeze on U.S. households right now is less than half as intense as it was at its 2008 peak. The index hit 28 in mid-2008 as oil surged to $147 a barrel and house prices tumbled by double digits.

Now, even if the vaunted double-dip in house prices under way, there is no sign of a return to those horrible old days. Inflation remains subdued, despite the screaming to the contrary, and unemployment has slipped to 9% from a recent 9.8% in spite of weak payroll gains in the past two months.

That puts the HESI at around 12, and while it may creep higher for the rest of 2011 it does not appear in danger of challenging its 2008 level. While energy prices are rising, there no reason to expect gasoline to rise much more.

Of course, that’s not to say there’s no misery out there now. The broadest measure of unemployment, which counts those marginally attached to the labor force as well, shows one in seven Americans is underemployed. Food stamp use, meanwhile, has climbed a shocking 40% since the fall of 2008.

And with all that, the bite from food inflation has yet to arrive. Capital Economics forecasts that the price shock will take nine months to show up at the grocery store. It says the food component of the consumer price index will rise at a 7% annual clip later this year, as rises in the costs of sugar, corn and other agricultural commodities work their way through the system.

If the recent run-up in energy and agricultural commodities persists, U.S. consumers will have to shell out $20 billion more for energy and $50 billion more for food this year, Capital Economics estimates.

Among other things, that squeeze on consumer budgets will eat up most of the payroll tax holiday bonus that Americans were supposed to get out of the deal in Congress that extended the Bush tax cuts, at some cost to the deficit. So much for the stimulus bump.

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