U.S. "misery index" rises to highest since 1983

CHICAGO Thu Oct 20, 2011 8:53am EDT

A man waits in line with others to enter a job fair in New York August 15, 2011.  REUTERS/Shannon Stapleton

A man waits in line with others to enter a job fair in New York August 15, 2011.

Credit: Reuters/Shannon Stapleton

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CHICAGO (Reuters) - An unofficial gauge of human misery in the United States rose last month to a 28-year high as Americans struggled with rising inflation and high unemployment.

The misery index -- which is simply the sum of the country's inflation and unemployment rates -- rose to 13.0, pushed up by higher price data the government reported on Wednesday.

The data underscores the extent that Americans continue to suffer even two years after a deep recession ended, with a weak economic recovery imperiling President Barack Obama's hopes of winning reelection next year.

Inez Stallworth, an underwriting assistant for a financial services company, recently gave up her car, in part because of rising costs for gasoline and groceries.

"I can't fit it in," said the 27-year-old Chicago resident, who said most of her extended family was getting by "paycheck-to-paycheck."

Consumer prices rose 3.9 percent in the 12 months through September, the fastest pace in three years.

With gasoline prices high, consumers have less to spend on other things. Moreover, a rise in overall prices saps economic growth, which is typically measured in inflation-adjusted terms.

The last time the misery index was at current levels was in 1983. But in 1984 an improving economy probably helped President Ronald Reagan win reelection. This year, the index has risen more than 2 points.

INFLATION RESPITE

While the misery index rose in September, many economists expect some respite in coming months, driven by softer inflation.

Wednesday's price data showed inflation outside food and energy rose at the slowest pace in six months in September.

Weakness in the jobs markets also accounts for some factors that could push inflation lower in coming months, economists say.

"With households facing weak wage growth and tight budgets, it is difficult to see a sustained, broad-based increase in prices," said Bank of America Merrill Lynch economist Neil Dutta.

He said Wednesday's data showed that businesses' ability to raise prices on clothing, movies and toys was "hitting a wall." Weak incomes also will make it harder for building owners to raise rents, further dampening inflation, Dutta said.

Indeed, inflation could slow to below 2 percent by mid-2012, said Capital Economics economist Paul Ashworth.

But a decline in the misery index declines due to softer inflation might not help Obama's reelection chances much.

"Any lowering of inflation isn't going to have much effect. People are just focused like a laser on unemployment," said independent political analyst Stuart Rothenberg.

Analysts polled by Reuters last week saw the jobless rate -- currently stuck at 9.1 percent -- barely ticking down to 8.9 percent by the end of next year. With the election in November 2012, the expected decline looks unlikely to help Obama's job prospects much.

Harold Archie, a bus driver with the Chicago Transit Authority, knows well the toll that unemployment is taking on Americans. Higher food and gasoline prices have compounded the strain on his finances since his son lost his job. Archie, 57, has been helping him financially.

Archie said his son might have a shot at getting his job back, but with a pay cut: "And he was only making $13 an hour to start with."

(Writing by Jason Lange; Editing by Leslie Adler)

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Comments (5)
adsanalytics wrote:
An interesting question is whether we are due to revisit the stagflation of the 1970′s. Arguably, the reason for the spike in the inflation then is due to COLA’s, dovish policy by the Fed and an unanchoring of inflation expectations. We can cross 2 out of the 3 off the current list of concerns immediately.

As far as Fed policy, it’s true that the money supply has grown: see chart below

http://www.adsanalytics.com/dashboard/docs/dashboard.php?treepage=tree_definition_main.php&chart=chart_m

however, velocity of money has been dropping as well – the banks are not lending out the cash in light of poor economic prospects and higher regulatory capital ratios.

So, the catalyst for another bout of staglation is not at all clear.

ADSAnalytics

Oct 20, 2011 4:52pm EDT  --  Report as abuse
the_Gaul wrote:
What’s not at all clear is your comment.
Current conditions do not mirror the 70s. Then, banks had not become the pariahs they are today, and they were willing to perform their actual business of lending. Today, thanks to the death of free enterprise, and the rise of socialism [with regard to corporate losses only - don't even think of touching profits or bonuses] banks no longer have any desire to lend to people who have excellent credit. Today, fees and charges build profits.
Stagflation? Perhaps; inflation is a certainty. What accompanies that inflation is anyone’s guess.
Until big-pharma, big-oil, and the military are brought to heel, we are all going to be miserable.

Oct 20, 2011 6:59pm EDT  --  Report as abuse
oddsox wrote:
Curious this article has resurfaced.
CNBC had it back in June.
Why again now?

Oct 20, 2011 7:11pm EDT  --  Report as abuse
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