Households glum as misery index hits 1983 levels

by JASON PHILYAW

Today's economy isn't as depressing as that of the 1930s, but it is as bad as 1983.

The Misery Index, which adds the unemployment rate and level of inflation, rose for the fourth-straight in May to 12.7 and is now at the highest level in 28 years. Economist Arthur Okun launched the index in the '70s in an attempt to gauge economic hardship.

Unemployment inched up to 9.1% in May, while annual rate of inflation rose to 3.6% as prices climbed across the board, in addition to elevated costs for energy and food. The number of initial jobless claims remained higher than 400,000 for about two months.

Earlier Friday, the preliminary reading for the monthly Thomson Reuters/University of Michigan consumer sentiment index dropped to 71.8 from 74.3 in May. Dire jobs reports, falling home prices and the ongoing economic uncertainty over the state of housing continue to weigh on consumer spending.

Analysts weren't too surprised by the drop, as gasoline prices flirted with $4 a gallon in mid-May before leveling off somewhat around $3.70. Paul Dales, senior U.S. economist at Capital Economics, said the index need to run higher than 86 to indicate economic recovery is underway.

"But now sentiment is being dented by the 8% drop in equity prices, the further fall in house prices, the weakening in the labor market, and general fears about the health of the overall economy," he said. "The recent severe flooding and tornadoes probably didn't help either."

"Households have good reason to be glum," Dales said, as the misery index hits levels last seen during Ronald Regan's first term as president. The index peaked near the end of President Carter's term, reaching 21.98 in June 1980.

URL to original article: http://www.housingwire.com/2011/06/17/households-glum-as-misery-index-hits-1983-levels

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