Misery index reaches new high

[jk]

the "misery index" was a popular reference in the late 1970's. it's equal to the sum of inflation and unemployment, and reached a peak of 21.98% in 1980. official "unemployment" back then meant something a little different than today, however. the announcements these days refer to "u-3," which does not include discouraged workers or those working only part time because they can't find a full time job. what was "unemployment" in the 1970's in what we now call "u-6." similarly, the definition [or, if you prefer, "calculation method"] of inflation has changed markedly. using the old definitions, the misery index is now about 24%.

data: http://www.shadowstats.com/alternate_data

[bart, i don't know if you chart the misery index, but it might be a popular feature]

[FRED]

the "misery index" was a popular reference in the late 1970's. it's equal to the sum of inflation and unemployment, and reached a peak of 21.98% in 1980. official "unemployment" back then meant something a little different than today, however. the announcements these days refer to "u-3," which does not include discouraged workers or those working only part time because they can't find a full time job. what was "unemployment" in the 1970's in what we now call "u-6." similarly, the definition [or, if you prefer, "calculation method"] of inflation has changed markedly. using the old definitions, the misery index is now about 24%.

data: http://www.shadowstats.com/alternate_data

[bart, i don't know if you chart the misery index, but it might be a popular feature]

We are developing an iTulip Misery Index composed of old style U6 unemployment and pre-1990 CPI plus the the stock and housing markets, taking into account the FIRE Economy's impact on misery,with its asset price inflations and deflations, since the old misery index was formulated in the pre-FIRE Economy era. Even if inflation declines from here, rising unemployment and falling asset prices will push the index up going into the elections.

[jk]

We are developing an iTulip Misery Index composed of old style U6 unemployment and pre-1990 CPI plus the the stock and housing markets, taking into account the FIRE Economy's impact on misery,with its asset price inflations and deflations, since the old misery index was formulated in the pre-FIRE Economy era. Even if inflation declines from here, rising unemployment and falling asset prices will push the index up going into the elections.
please also include a reconstruction of the old misery index, as i did here. that way, it will easier to make comparisons with past episodes. i.e. graph misery index reconstructed [u-6 + corrected cpi], as well as misery index extended by new fire-related considerations. you might also take a look at john williams' alternate unemployment index, which is giving readings even worse that u-6.

[Jim Nickerson]

the "misery index" was a popular reference in the late 1970's. it's equal to the sum of inflation and unemployment, and reached a peak of 21.98% in 1980. official "unemployment" back then meant something a little different than today, however. the announcements these days refer to "u-3," which does not include discouraged workers or those working only part time because they can't find a full time job. what was "unemployment" in the 1970's in what we now call "u-6." similarly, the definition [or, if you prefer, "calculation method"] of inflation has changed markedly. using the old definitions, the misery index is now about 24%.

data: http://www.shadowstats.com/alternate_data

[bart, i don't know if you chart the misery index, but it might be a popular feature]

So, jk, what does this portend for the US economy?

[jk]

So, jk, what does this portend for the US economy?
means we've got a lot of misery already, jim. the misery index is a coincident - not a leading- measure of economic "misery." so no portents intended, just another [another!] look at how bad things look when you pierce the veil of officially obscured statistics.

[bart]

[bart, i don't know if you chart the misery index, but it might be a popular feature]

I've been tracking it for almost a year now, and added it to my key stats page a few months ago.

Here's both the shorter and long term pictures:

http://www.nowandfutures.com/images/pain_misery_index_short.png



http://www.nowandfutures.com/images/pain_misery_index.png






And here's a different take on it - adding in housing:

http://www.nowandfutures.com/images/pain_misery_housing_short.png


http://www.nowandfutures.com/images/pain_misery_housing_index.png


Good idea too, I'll copy this post to my section for easier reference.

Pain Misery index, with & without housing
http://www.itulip.com/forums/showthread.php?p=46419#post46419

[c1ue]

The Pain and Misery index is a useful tool, but I think the interpretive value has been distorted by the advent of credit.

Is there some way to have the index, but adjusted for the availability of credit? Specifically in the inverse availability of personal credit.

After all, someone without a job can survive for some period of time via borrowing - credit card or otherwise - whereas 20 years ago this wasn't really an option for the masses.

[bart]

The Pain and Misery index is a useful tool, but I think the interpretive value has been distorted by the advent of credit.

Is there some way to have the index, but adjusted for the availability of credit? Specifically in the inverse availability of personal credit.

After all, someone without a job can survive for some period of time via borrowing - credit card or otherwise - whereas 20 years ago this wasn't really an option for the masses.

Interesting thought, but I both have little clue how to implement it in the sense of how big a factor it is, and also and primarily I have little idea on how to adjust and account for the time period before that credit availability runs out.

[c1ue]

Bart,

I've seen this statistic:


Approximately 14 percent of Americans use 50 percent or more of their available credit, and this group carries an average of 6.6 credit cards (Source: Center for Media Research)


But I cannot find any such original document - the Media Research Center I see seems to mostly talk about politics.

Certainly this information is available via $3K+ research reports.

Another way might be the Fed's statistics:

http://www.federalreserve.gov/releases/g19/Current/

Correlated vs. personal debt/credit card numbers

[tree]

The Pain and Misery index is a useful tool, but I think the interpretive value has been distorted by the advent of credit.

Is there some way to have the index, but adjusted for the availability of credit? Specifically in the inverse availability of personal credit.

After all, someone without a job can survive for some period of time via borrowing - credit card or otherwise - whereas 20 years ago this wasn't really an option for the masses.

I had a friend in L.A. who survived for quite a while on credit cards in the mid-1990s, running up a handsome five-figure balance before he left the country.

Today, however, I think banks are a lot faster to reduce credit card limits, not to mention raise interest rates, when they see debt to income ratios rising.

Borrowing from friends and family -- now there's a story!

[GRG55]

The Pain and Misery index is a useful tool, but I think the interpretive value has been distorted by the advent of credit.

Is there some way to have the index, but adjusted for the availability of credit? Specifically in the inverse availability of personal credit.

After all, someone without a job can survive for some period of time via borrowing - credit card or otherwise - whereas 20 years ago this wasn't really an option for the masses.

This seems to raise the question as to whether credit availability should actually be part of the "measurement of misery", or if it is instead an alternative response or "solution" to a rising misery index.

[c1ue]

This seems to raise the question as to whether credit availability should actually be part of the "measurement of misery", or if it is instead an alternative response or "solution" to a rising misery index.

I think the answer to your question may be a little of both.

Credit availability affects economic growth in general, but credit availability also serves as a buffer for personal consumption.

Specifically for individuals, it may well be that the limits of spending are no longer defined by cash nor income, but rather ability to maintain payments on credit cards - which in turn implies a relationship with credit remaining.

The point I was trying to convey is that a straight measurement of unemployment, income, and housing cannot account for the effects of credit except in the medium and long term.

As an example I posit the post Internet bubble period: while the misery index was quite high - I cannot recall any instances of REAL suffering.

The index with housing shows no suffering in this case, but it may have been the credit aspect of housing rather than housing itself which was the cause (or lack thereof).

[Chris Coles]

When the chips go down the real problem is one of lack of income. The plus side is that in todays environment, certainly here in the UK, if you are prepared to pull your horns in very tight, you are very much protected from harassment. So while it might on the surface look a better option to spend on the credit cards, in fact, it is much better to knuckle down and take it on the chin. Live as carefully as you can and cut all spending to bare minimums and keep those payments flowing every month to the closed credit. When you get back on track, the experience from tight control of money and a clear, very visible attention to personal finances, mean you can command the high ground. In my own case, after several years of real struggle, I expect to be back in front of the wave before another year goes by and never having to look back again.

[bart]

Bart,

I've seen this statistic:


Approximately 14 percent of Americans use 50 percent or more of their available credit, and this group carries an average of 6.6 credit cards (Source: Center for Media Research)
But I cannot find any such original document - the Media Research Center I see seems to mostly talk about politics.

Certainly this information is available via $3K+ research reports.

Another way might be the Fed's statistics:

http://www.federalreserve.gov/releases/g19/Current/

Correlated vs. personal debt/credit card numbers


That 50% sounds about right. The average American's credit card balance is about $3100 as I recall, and that's calculated by using both census data and the approx $1 trillion total revolving credit card balances.

The problem that I don't know how to solve though is how to apply the data to the pain misery index to adjust and account for the time period before that credit availability runs out, nor do I have any way to defend or even reliably calculate how big of a factor credit availability is. It's a good point and valid - I just don't know how to reliably implement it.