The Misery Index

In yet another sign of the times, the three Atlantic City casinos once run by Donald Trump filed for bankruptcy protection yesterday.  Although Trump maintains that he has little to do with the businesses other than having his name on the buildings, it does reflect the fact that things are pretty tough out there for everyone – even “The Donald”.

Trump Is Not Alone

Of course, Trump Casinos are not alone. Businesses the world over are feeling the pinch of a global economic downturn. And in recent days, word that Japan’s economy contracted at its fastest pace in over three decades in the final quarter of 2008, disappointing corporate earnings, renewed talk of bankruptcy in the U.S. auto sector and continuing skepticism over the $790 billion dollar fiscal stimulus package proposed by the Obama administration once again have investors fretting over the future. This concern has weighed on stock markets in recent days. The MSCI World index has closed down for six straight sessions and in North America, while the S&P 500 declined 4.6% to it’s lowest level since November.
These days, it seems like the negative headlines are relentless. But in my mind, that simply means that we have to dig a little deeper to maintain an emotional even keel in today’s environment, which for a good year now has been solidly tilted to the negative side of the dial. I saw an article about the “misery index” in yesterday’s Globe & Mail that I think put some of the doom and gloom into perspective.

The Misery Index

The Misery index was devised by a Yale professor back in the sixties who was also an economic advisor to Presidents John F. Kennedy and Lyndon Johnson. It’s calculated by adding the unemployment rate to the inflation rate – two key factors that can damage a country’s economy. The premise is that adding the two together paints a picture of how bad things are.

Many comparisons have been made between today’s situation and severe economic downturns of the past. But if we consider today’s misery index within a historical context, it’s clear that things are different now. Case in point – because inflation is so low, the misery index is far below its peak levels from the 1980s when unemployment was sky high and inflation was rampant.

In both Canada and the United States, the misery index peaked well above 20 in the early 1980s. Today, while unemployment rates in both countries have moved above 7 percent, low inflation is keeping the misery index at around 8. Although this may not be any consolation for thousands of people who have lost their jobs, it does comment on the bigger picture to some degree.

While the misery index certainly shouldn’t be considered the definitive indicator of economic health, given all of the negative news that’s out there, it’s another way to help maintain a balanced perspective in today’s environment.

“The key to your success in the bull market is what you do in the bear market”.


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