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The augmented misery index is an indicator that combines the inflation rate, the unemployment rate, and the change in housing prices to capture the national economic mood of bad times (a high index number) or good times (a low index number). PIIE experts track this augmented misery index and present their findings on this page biannually. The original misery index was created by Arthur Okun just after the first oil crisis of the 1970s and was popularized by Jimmy Carter during his presidential campaign in 1976.
For the augmented misery index, a lower score is better—less economic pain. The index dropped from 7.0 in the first half of 2015 to -0.2 in the second half of 2015, implying a big improvement in US economic life, mainly in three areas. The improvement largely reflects a decline in the headline consumer price index (CPI) and a sharp hike in housing prices. The headline CPI plunged from 3.3 percent in early 2015 to -1.8 percent in late 2015. Housing prices rose 3.5 percent in the second half of 2015, up from a gain of 1.8 percent in the first half. The sharp drop in oil prices prompted a 6.4 percent decline in the energy price between June and December 2015. Continuing its declining trend, the unemployment rate fell to 5.1 percent in the second half of 2015, well below the Federal Reserve's announced goal of 6 percent.
As in previous years, the augmented misery index exhibited a cyclical pattern in 2015: The second half showed a lower and better score than the first half, to a large extent due to the seasonal decline in the CPI in the second half of most years.
The stock market is not a component of the augmented misery index, but it did not perform well in the second half of 2015. The Standard and Poor's 500 Index (S&P 500) dropped almost 1 percent in the second half, compared with a 0.2 percent increase in the first half of 2015. The oil price drop hurt energy stock earnings, and dollar appreciation damaged the measured earnings of US corporations with overseas sales. China's currency devaluation in August 2015 coincided with a sudden fall in the S&P 500 index, from 2,100 in July to 1,920 in September 2015.
The consumer sentiment index retreated, dropping to 91 percent in the second half of 2015, from 94.9 percent in the first half. Even so, the index remained above the threshold of 90 that reflects an optimistic outlook. The presidential approval rating barely moved, scoring 45.4 percent in late 2015, compared to 45.7 percent in early 2015. These two sentiment indexes suggest that Americans were broadly content with economic conditions in the second half of 2015. But that conclusion does not accord with the pent-up anger that propelled the presidential aspirations of Donald Trump and Bernie Sanders in the first half of 2016. Neither the economic components of the augmented misery index nor the standard sentiment indexes adequately capture the deep discontent felt in many American households.
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Augmented Misery Index: First Half of 2015
Gary Clyde Hufbauer (PIIE) and Euijin Jung (PIIE)
October 2015
The augmented misery index reached 7.0 in the first half of 2015, from an almost record low of –0.1 in the second half of 2014. Inflation was a major element for most of the rise, reflecting the historical tendency for prices to increase more during the first half of the year. The headline consumer price index (CPI), which includes food and fuel prices, jumped from an annualized rate of –3.0 percent in late 2014 to 3.3 percent in early 2015. However, since the threat of deflation has been more worrisome than inflation for several years, mildly rising prices have actually been interpreted as a positive signal.
The unemployment rate fell to 5.5 percent in the first half of 2015 from 5.9 percent in the second half of 2014. Unemployment is now well below the Federal Reserve's target of 6 percent. The improvement was smaller than in the first half of 2014, when unemployment fell to 6.5 percent from 7.1 percent. Housing prices were another positive feature, increasing by 1.8 percent in the first half of 2015, somewhat less than the 3.0 percent increase in the second half of 2014.
The stock market was flat during the first half of 2015, with the S&P 500 index rising only 0.2 percent, compared with a 5 percent increase in the second half of 2014 and a 6.1 percent gain in the first half of 2014.
The consumer sentiment index improved in early 2015, reaching 94.9, up from 86.4 in late 2014. This figure is above the threshold of 90 which denotes optimism, and is close to the level in the second half of 2004. President Obama's approval rating moved up from 42.2 percent in the second half of 2014 to 45.7 percent in the first half of 2015. The rise was mainly driven by better economic conditions, especially the falling unemployment rate. The Supreme Court's decisions on the Affordable Care Act and gay marriage probably gave Obama a further boost.
Augmented Misery Index: Second Half of 2013
by Gary Clyde Hufbauer, Peterson Institute for International Economics
and Tyler Moran, Peterson Institute for International Economics
April 2014
The augmented misery index fell substantially in the second half of 2013, sinking to –1.8, a full nine points lower than its level in the first half of 2013. All three components of the index improved substantially over their values in the first half of 2013. The expected seasonal decline in the "headline" consumer price index, which includes food and energy prices, was partially responsible for the large decline. Unemployment fell as well, from 7.7 percent in the first half of 2013 to 7.1 percent in the second half—yet still well above the level before the Great Recession and above the Federal Reserve's 6 percent target. But housing prices more or less stole the show in the second half of 2013, increasing by 8.9 percent, substantially greater than the 3.9 percent increase in the first half of the year. This was the sharpest increase in housing prices on record and the largest contribution to the fall in the augmented misery index.
The stock market, which is not considered in the augmented misery index, made major gains in the second half of 2013, with the S&P 500 rising by 15.1 percent and reaching a record high of nearly 1,850. This was higher than the 12.6 percent gains made in the first half of 2013.
The consumer sentiment index moved up slightly in the second half of 2013, up to 79.3 from 79.2 in the first six months. This puts consumer sentiment firmly above its levels during the immediate aftermath of the financial crisis. However, returning to the level of confidence that was common in the years before 2007, when the consumer sentiment index exceeded 90, remains a distant goal.
Despite the relatively rosy economic outlook, President Obama saw his approval rating sink to 42.9 percent, down from 48.9 percent in the first half of 2013. Dissatisfaction with the Obama administration was strongly influenced by events outside the traditional realm of economic performance, exemplified by the continuing debate over the Affordable Care Act (Obamacare), the discouraging turn of the civil war in Syria, and Edward Snowden's massive leaks of National Security Agency (NSA) documents.
Augmented Misery Index: First Half of 2013
by Gary Clyde Hufbauer, Peterson Institute for International Economics
and Tyler Moran, Peterson Institute for International Economics
December 2013
The augmented misery index increased dramatically in the first half of 2013, rising to 7.2 from a value of 1.5 in the second half of 2012. Predictably, inflation was responsible for most of this increase, since historically prices tend to rise more during the first half of the year (see the accompanying table ). The headline consumer price index (CPI), which includes food and fuel prices, rose from an annualized rate of 0.1 percent in late 2012 to 3.4 percent in early 2013. Energy prices were a major factor, both for home consumption and transportation. In the first half of 2013, household energy prices increased at an annualized rate of roughly 13 percent while motor fuel prices increased at an annualized rate of nearly 18 percent.
Housing prices continued moving upward during the first half of 2013, although with less vigor than the previous six months. They increased by 3.9 percent in the first half of 2013, compared with a 6.5 percent in the second half of 2012. However 2013 was the first year to see an increase in housing prices during the first half since 2006.
The unemployment rate edged downward in the first half of 2013, falling to 7.7 percent from 7.9 percent in the second half of 2012. The improvement was considerably smaller than the decrease seen in the first half of 2012, when unemployment fell to 8.2 percent from 8.9 percent in the second half of 2011. The recent drop in the unemployment rate leaves the rate well above the Federal Reserve's goal of 6 percent, the threshold that was common before the Great Recession.
The stock market made strong gains during the first half of 2013, with the S&P 500 index rising by 12.6 percent, compared with a 4.7 percent increase in the second half of 2012 and an 8.3 percent gain in the first half of 2012. The S&P 500 index surpassed the 1,600 mark in April 2013 for the first time in history and above the level seen in 2013, before the Great Recession.
Consumer sentiment improved during the first half of 2012, settling at 79.2, up from 72.2 in the second half of 2012. Consumer sentiment has sharply improved since the depths of the recession, when values in the mid to low 60s were common, but remains well short of readings seen before 2008. The first half of 2013 saw extreme disputes over fiscal policy and the dreaded sequester, two forces that weighed negatively on consumer confidence. President Obama's approval rating fell slightly from 49.6 percent in the second half of 2012 to 48.9 percent in the first half of 2013, still not a bad number.
Augmented Misery Index: Second Half of 2012
by Gary Clyde Hufbauer, Peterson Institute for International Economics
and Tyler Moran, Peterson Institute for International Economics
January 2013
A sharp fall in the augmented misery index in the second half of 2012 was among the factors contributing to President Obama's reelection. The index fell to 1.5, its lowest level since 2005, down from 14.2 in the first half of 2012. All three components of the index substantially improved in the second half, with housing prices showing the greatest strength. The headline consumer price index (CPI), which includes food and fuel prices, fell from 3.4 percent to 0.1 percent.
Unemployment continued its slow downward march, falling from 8.2 percent in early 2012 to an average of 7.9 percent in the second half of 2012. Yet there was still substantial ground to cover before the economy could return to unemployment below 6 percent, the rate enjoyed before the Great Recession.
Housing prices increased 6.5 percent in the second half of 2012, far above the 2.6 percent decline seen in the first half of 2012. Housing prices began rising in March 2012 and continued to do so until August 2012. Although rising housing prices are typical during the second half of the year, the 6.5 percent increase was beyond prior experience.
The stock market, which is not a component of the augmented misery index, rose 4.7 percent in the second half of 2012. This followed an 8.3 percent increase in the first half of 2012 and a 4.8 percent fall in the second half of 2011. The S&P 500 index reached 1,470 in December 2012, its highest level since January 2008.
Despite the wave of good economic news, consumer sentiment retreated slightly, falling to 72.2 in late 2012 from 75.9 in the first half of the year. Continued trench warfare in the Congress over the government budget, particularly with regard to the dreaded "fiscal cliff," seemed to have weighed more heavily on the minds of consumers than for stock market investors or home buyers. Even so, President Obama saw his approval rating rise to 49.6 percent, up from 47.5 percent earlier in 2012 and far above late 2011, when only 43.9 percent of Americans were satisfied with his job performance.
Augmented Misery Index: First Half of 2012
by Gary Clyde Hufbauer, Peterson Institute for International Economics
and Julia Muir, Peterson Institute for International Economics
September 2012
The augmented misery index moved sharply upward in the first half of 2012, from a revised 8.5 in the second half of 2011, to 14.2.1 The higher reading largely reflects a steep jump in the headline consumer price index (CPI) and a drop in housing prices.2 Headline CPI rose from 0.2 percent in 2011H2 to 3.4 percent in 2012H1. This increase is due in part to a jump in the price of oil during the first three months of 2012, when oil was trading over $100 per barrel. Prices began to fall in April, after peaking at $106 in March, but remained well above the average price of $92 per barrel seen in the second half of 2011.
Housing prices declined by 2.6 percent during the first half of 2012. From January to March housing prices fell but began a steady climb upward in the remaining three months. Despite the upswing in prices, the six-month average fell by 2.6 percent compared with an increase of 0.6 percent in the second half of 2011. These price movements are in line with a seasonal trend of rising house prices during the spring months, an occurrence over the last four years.
Unemployment remained relatively flat in the first half of 2012. The six-month average was slightly lower than the second half of 2011—8.2 percent compared with 8.9 percent—but still nowhere near the 4 to 5 percent range seen in the years preceding the financial crisis.
Despite these adverse developments, consumer sentiment improved in 2012, from 62.3 in 2011H2 to 75.9 in 2012H1. The presidential approval rating also improved, averaging 47.5 percent in the first half of 2012 compared with just 43.9 percent in the second half of 2011. The more positive outlook reflects modest but positive job growth and a more optimistic outlook after the debt ceiling debacle during the second half of 2011.
The stock market performed better in 2012 than in 2011. The Standard and Poor's 500 index (S&P 500) was up 8.3 percent in 2012H1, compared with the 5.0 percent increase seen during the same time period in 2011 and a 4.8 percent drop in the second half of 2011. In late August the S&P 500 hit its highest level in four years, trading at 1,427, a level not seen since May 2008.3
Uncertainty over the federal budget, persistent problems in the housing market, and the continued European financial crisis imply that a happier outlook for the second half of 2012 is not assured. The Congressional Budget Office's (CBO) Economic Outlook forecasts real GDP growth of 2.2 percent in the second half of 2012.4 This is slightly higher than the 1.7 percent growth seen in the first half of 2012 but not high enough to significantly reduce unemployment from its current level of 8.2 percent. The International Monetary Fund (IMF) revised its growth projections for the United States in July, lowering GDP projections by 0.1 percent from its April World Economic Outlook. 5 As for housing prices, the CBO forecasts only a modest rise in prices over the medium term.
Weak forecasts for economic growth and the prospect of a slow recovery in the housing market reflect the looming possibility that growth will stall in 2013 because of excessive fiscal tightening (the "fiscal cliff"). Possible fiscal tightening includes the expiration of the Bush tax cuts for middle-income and rich households, expiration of the payroll tax cuts, and implementation of the first phase of the $1.2 trillion (over 10 years) sequestration program. However, depending on the outcome of the November 6 US presidential election, these policies could be delayed or modified. On August 7, 2012, President Barack Obama signed into law the Sequestration Transparency Act, which mandates the president to issue a report within 30 days detailing the first phase of the $1.2 trillion spending cuts. The report will give the public a clearer idea of how the administration plans to stabilize the nation's debt-to-GDP ratio, if Obama is reelected. If Mitt Romney wins the election, the Bush era tax cuts may be extended indefinitely. Moreover, a Romney administration will likely propose some hybrid of the Paul Ryan budget plan, focusing on cuts to entitlement programs (especially Medicare), starting in 5 to 10 years. Although these policies, if enacted, will not come into effect for several years, they would likely have an immediate and positive impact on investor sentiment.
The European Union continues to struggle. The IMF forecasts 0.3 percent negative GDP growth for 2012 and just 0.7 percent positive growth in 2013. The CBO likewise expects the European economy to contract during the remainder of 2012.6 On September 4, 2012, Moody's downgraded the EU credit rating from "stable" to "negative," reflecting credit risk among the European Union's key budget contributors, the United Kingdom, France, and Germany—countries that have all been assigned "negative" outlooks. However, the European Central Bank is expected to announce a fresh round of government bond purchases aimed at Spain and Italy, which could avert the need for large-scale bailouts in the style of Greece, Portugal, and Ireland.
Little movement in unemployment and weak outlooks for the housing market and the euro area imply that the augmented misery index will likely stay in double digits during the second half of 2012. What's more, the CPI reading could increase somewhat. In his speech at the Jackson Hole meeting, the chairman of the Federal Reserve, Ben Bernanke, left the possibility of QE3 open, stating "the costs of non-traditional policies […] appear manageable, implying we should not rule out the further use of such policies if economic conditions warrant."7 Although QE3 is unlikely to push inflation above the Federal Reserve's long-term target of 2 percent, any upward movement could contribute to a more miserable second half of 2012.
It's not news that President Obama faced an uphill battle on economic conditions at the end of June. Our augmented misery index for the first half reflects what everybody knows—times are tough. The economic question for the next few months is whether conditions leading into the presidential election will become marginally better or marginally worse.
Notes
1. When the augmented misery index for 2011H2 was published, housing price data were incomplete. In this publication we include data for all six months (July through December 2011), which changes the housing price indicator from 1.7 to 0.6 percent. Consequently, the augmented misery index for 2011H2 is revised from 7.4 to 8.5.
2. The augmented misery index uses "headline" CPI, which includes food and fuel prices, rather than "core" CPI, which excludes these components.
3. Rodrigo Campos, "Wall Street slips after S&P 500 hits four-year high," Reuters, August 21, 2012, www.reuters.com (accessed on August 22, 2012).
4. Congressional Budget Office, 2012, An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022, Washington.
5. International Monetary Fund, 2012, Weak Global Recovery Depends on Progress in Europe and United States, Washington.
6. The IMF's forecast includes Germany, France, Italy, and Spain, while the CBO's forecast includes Belgium, Cyprus, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Luxembourg, Malta, Netherlands, Austria, Portugal, Slovenia, Slovakia, and Finland (the 17 members of the European Union that use the euro as their currency).
7. Chairman Ben S. Bernanke, speech at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming, August 31, 2012, available at http://www.federalreserve.gov (accessed on August 31, 2012).
Augmented Misery Index: Second Half of 2011
by Gary Clyde Hufbauer, Peterson Institute for International Economics
and Woan Foong Wong, Peterson Institute for International Economics
January 2012
The augmented misery index for the second half of 2011 improved dramatically compared with the first half of 2011: a reading of 7.4 compared with 19.3. This largely reflects the sharp decrease in "headline" consumer price index (CPI) and the biggest increase in housing prices since the end of 2009.1 Headline CPI plunged from the revised 6.0 percent in the first half of 2011 to 0.2 percent in the second half of 2011, partly because of a sharp drop in gasoline prices in October and November.2 Housing prices increased by 1.7 percent in the second half, not a huge jump but a welcome relief after four years of generally falling prices.
As anticipated in our last report, the better reading for the augmented misery index confirms the cyclical pattern of happier times in the second half of each year, to some extent explained by a seasonal drop in CPI readings in the second half of most years.
The stock market (not part of the augmented misery index) deteriorated by 4.8 percent in the second half of 2011. This drop echoed sovereign debt woes in Europe, culminating in downgrades by S&P of French, Austrian, Italian, and Spanish government debt. Adding to worries, the World Bank sharply cut its 2012 global growth forecast to just 2.5 percent, down from the June 2011 estimate of 3.6 percent. According to the World Bank, the euro area will contract 0.3 percent in 2012 (versus the previous forecast of a 1.8 percent gain), while US growth is now pegged at 2.2 percent (versus 2.9 percent).3
The consumer sentiment index plunged to 62.3 in the second half of 2011, the lowest reading since the thick of the recession in 2008. The congressional stalemate on addressing the US deficit, coupled with the prolonged debate on extending the payroll tax cut and unemployment benefits, chipped away at consumer confidence. The same issues dragged down the approval rating for President Barack Obama to a modest 44 percent. This is the lowest rating since President Obama took office, underscoring his vulnerability going into the 2012 presidential election.
For the first half of 2012, unemployment is likely to show another modest decline. If housing prices continue their modest recovery, and the CPI is well behaved, the augmented misery index is likely to stay in single-digit territory, even if higher than the second half of 2011. A low reading for the 2012 first half index would be welcome news in the White House.
Notes
1. The original Okun misery index and our augmented version both use "headline" CPI figures (including food and fuel prices) rather than "core" CPI figures (which exclude those two components).
2. Gasoline (all types) CPI decreased by 3.1 percent in October 2011 and then dropped another 2.4 percent in November 2011. See Bureau of Labor Statistics, Table A: Percent Changes in CPI for all Urban Consumers (CPI-U), US city average, Consumer Price Index—December 2011, news release, December 16, 2011.
3. Sandrine Rastello, "World Bank Cuts Global Growth Forecast as Euro Region Contracts: Economy," Bloomberg, January 17, 2012, available at (accessed on January 18, 2011).
Augmented Misery Index: First Half of 2011
by Gary Clyde Hufbauer, Peterson Institute for International Economics
and Woan Foong Wong, Peterson Institute for International Economics
June 2011
The augmented misery index for the first half of 2011 doubled due to a sharp increase in the "headline" consumer price index (CPI) and the largest drop in housing prices since the first half of 2009.1 The headline CPI rose from 1.2 percent in the second half of 2010 to an annual rate of 6.6 percent in the first half of 2011, reflecting the global spike in oil and food prices. The unemployment rate declined modestly to 9 percent from 9.6 percent in the second half of 2010. Housing prices fell by 4.5 percent after a timid recovery in the second half of 2010.
Combining the CPI, unemployment, and housing prices resulted in a reading of 20.1 for the augmented misery index in the first half of 2011, a level last seen in early 2009. The augmented misery index for the second half of 2010 was revised upwards from 9.8 to 10.3.
The stock market (not included in the augmented misery index) improved by only 0.8 percent in the first half of 2011. Persistent sovereign debt problems in Europe and unrest in the Middle East did not bode well for investor confidence.
The consumer sentiment index rose to 72.3 in the first half of 2011, similar to the level in early 2010. The approval rating for President Barack Obama soared to 57 percent after Osama bin Laden was killed but since has moderated to around 49 percent. This is still an improvement over his 46 percent approval rating in the second half of 2010; nevertheless, President Obama's approval rating has returned to the range of vulnerability if it stays at this level until the 2012 presidential election.
The International Strategy & Investment's (ISI) Morning Policy Report, published on June 7, 2011, showed that many Americans strongly disapprove of President Obama's handling of the economy and the budget deficit. A Washington Post poll in early June 2011 showed Mitt Romney leading President Obama in a head-to-head matchup. Yet Intrade put the odds of the president being reelected at 61 percent on June 7, 2011.
For the second half of 2011, unemployment is likely to decline, but slowly. Once Muammar Gadhafi falls, there might be less unrest in the Middle East and North Africa; meanwhile the slowing world economy has taken oil and other commodity prices off the boil.2 If these trends continue, the augmented misery index for the second half of 2011 may decline somewhat. For reasons that are not entirely clear, the index has shown a tendency to decline in the second half in recent years, and this phenomenon may bode happier times over the next six months.
Notes
1. The original Okun misery index and our augmented version both use "headline" CPI figures (including food and fuel prices) rather than "core" CPI figures (which exclude those two components).
2. The International Monetary Fund's downward revision of 2011 US growth by 0.3 percentage points to 2.5 percent and 2012 US growth to 2.7 percent also signals a muted recovery. Ian Talley, "IMF Cuts Growth Forecast for Global Economy," Wall Street Journal, June 17, 2011.
Augmented Misery Index: Second Half of 2010
by Gary Clyde Hufbauer, Peterson Institute for International Economics
and Woan Foong Wong, Peterson Institute for International Economics
January 2011
The augmented misery index for the second half of 2010 noticeably decreased compared with the first half of 2010, raising hopes that the United States is on the path toward economic recovery. The consumer price index (CPI) rose at an annual rate of 1.2 percent in the first half of 2010, showing a slight 0.6 percentage point decrease compared with the early 2010 figure of 1.8 percent. The unemployment rate declined slowly, in 0.1 percentage point decrements, to a current average of 9.6 percent from the 9.8 percent high in the second half of 2009. Housing prices showed timid signs of recovery in the second half of 2010.
Taking the CPI, unemployment, and housing prices together, the augmented misery index for the second half of 2010 declined to high single digits at 9.8, compared with 12.0 for the first half of 2010. The stock market (not included in the augmented misery index) rebounded by 22 percent, indicating the biggest surge in investor confidence since the late 1980s. Of course the economic world still has plenty of trouble—ranging from sovereign debt in Europe to flash points in the Middle East—but on the whole positive signs have the edge.
Even so, consumer sentiment fell slightly to 69.8 in the second half of 2010, similar to levels in the second half of 2009. This is partly due to a big 8 point drop between June 2010 (76.0) and July 2010 (67.8), reflecting a dismal economic outlook. Approval ratings for President Barack Obama dipped to an average of 45.6 percent in the second half of 2010 from 47.7 percent in the first half of 2010. In other words, the better augmented misery index in the second half of 2010 did not translate into improved consumer confidence nor better approval ratings.
In January 2011, however, the presidential approval rating turned up. After the Democrats suffered a "shellacking" in the November 2010 elections, President Obama steered two major pieces of legislation through the Congress—an extension of the Bush tax cuts and Senate approval of the START treaty. In his State of the Union address on January 25, 2011, Obama highlighted bipartisanship, the federal deficit, and jobs. The new and more moderate direction from the White House no doubt contributed to a significant boost in Obama's approval ratings—an average of 49.6 percent for the month of January. In fact, two of the latest surveys show approval ratings of 53 percent.
Better approval ratings probably reflected as well the improved misery statistics in the second half of 2010 and a brighter economic outlook. The Bureau of Economic Analysis (BEA) reported, on January 28, 2011, that real GDP increased at an annual rate of 3.2 percent from the third quarter to the fourth quarter of 2010.1 Personal consumption expenditures increased at an annual rate of 4.4 percent in the last quarter of 2010 compared with the third quarter—the highest increase since 2007. Disposable personal income rose at an annual rate of 3.5 percent in the fourth quarter. Finally December unemployment declined slightly to 9.4 percent.2 If these trends continue, the augmented misery index for the first half of 2011 could drop to the middle single digits.
Notes
1. Bureau of Economic Analysis, Gross Domestic Product: Fourth Quarter and Annual 2010 (Advance Estimate) [pdf]>, news release, January 28, 2011. For 2010, the GDP increase is estimated at 2.9 percent.
2. Bureau of Labor Statistics, The Employment Situation—December 2010 , news release, January 7, 2011.
Augmented Misery Index: First Half of 2010
by Gary Clyde Hufbauer, Peterson Institute for International Economics
and Woan Foong Wong, Peterson Institute for International Economics
July 2010
The augmented misery index for the first half of 2010 is back in double digits, indicating that events have denied the US economy a robust recovery. The consumer price index (CPI) rose at an annual rate of 1.8 percent in the first half of 2010. While low, this is substantially higher than 0.2 percent in the second half of 2009. The unemployment rate decreased only slightly to an average of 9.7 percent. Meanwhile, housing prices fell back into negative territory, as the market responded to the ending of the federal first-time homebuyer tax credit program on April 30.
As a result of these readings, the augmented misery index for the first half of 2010 jumped to 12.6 compared with 7.1 in the second half of 2009. The stock market (not included in the augmented misery index) also retreated during the first half of 2010, as the Greek debt crisis, difficulties in other parts of Europe, and prospects for a slow recovery damaged investor confidence.
Consumer sentiment gradually improved in the first half of 2010, but the index is nowhere near precrisis levels, largely reflecting high unemployment. Approval ratings for President Obama fell below 50 percent, the first time since he took office. By comparison, President George W. Bush's approval rating was near 74 percent a year and a half after he first took office in 2001. Along with a difficult economy, President Obama has been plagued by political battles over health care, climate change, and the Afghanistan war.
Looking ahead to the second half of 2010, the economic indicators are likely to improve. Unemployment should decline, if only slightly. With excess capacity throughout the economy, consumer prices should remain stable. Once the housing market digests the end of the federal tax credit, home prices may start a slow ascent. Better readings could bolster consumer confidence and the approval rating for President Obama.
Augmented Misery Index: Second Half of 2009
by Gary Clyde Hufbauer, Peterson Institute for International Economics
and Woan Foong Wong, Peterson Institute for International Economics
January 2010
The augmented misery index during the second half of 2009 mirrors the much-heralded passing of the Great Recession. The decrease by more than half, compared with the previous index for the first half of 2009, is a good sign of recovery. The consumer price index (CPI) rose only 2.4 percent, at an annual rate, in the second half of 2009 compared with the 5.2 percent rate in the first half. The unemployment rate, however, edged up to an average of 9.8 percent in the second half versus 8.7 percent in the first half. In fact, unemployment reached 10.1 percent in October, the first time since the early 1980s when unemployment hit double digits.1 Although the recovery has yet to translate into jobs, the lower CPI reading more than offset the higher unemployment rate, so the misery index (as originally conceived by Arthur Okun) in the second half of 2009 fell compared with the first half.
As predicted when we released the first half 2009 augmented misery index, the housing price index is back in positive territory. As a result, the new augmented misery index fell to less than half the stratospheric level recorded in the first half of 2009. With fewer bad tidings, consumers slowly recovered their confidence in the economy, and the consumer sentiment index showed a modest upturn. Most households believe that the worst is over but are quite uncertain when their own finances will take a better turn.2
While the economy has slowly regained momentum, and consumer sentiment is stronger, this did not translate into higher presidential approval ratings. In fact, the approval rating for President Obama dropped by about 10 percent between the first and second half of 2009. Possible reasons are many: The "glow" from banishing President George W. Bush to his Texas ranch has faded; battle deaths in the Afghanistan war are rising; doubts over stimulus measures and federal deficits are mounting. In addition, the American people may give a heavier weight to high unemployment than the one-third weight we assign in computing the augmented misery index.
What about 2010? The economy should continue along the recovery path, and unemployment rates should begin to drift down. The CPI reading may increase slightly, but housing prices should also enjoy a slow climb. These trends should improve consumer sentiment, and they ought to bode well for President Obama. But political battles over health care and climate change, the Afghanistan war, and lingering high unemployment might deprive Obama of a bounce in his presidential approval ratings.
View Second Half 2009 Augmented Misery Index
Notes
1. Sudeep Reddy, "Grim Milestone as Jobless Rate Tops 10%," Wall Street Journal, November 9, 2009, available at http://wsj.com (accessed on January 13, 2010).
2. Reuters/University of Michigan Survey of Consumers, "Consumer Confidence Improves," December 23, 2009, available at https://customers.reuters.com (accessed on January 13, 2010).
Augmented Misery Index: First Half of 2009
by Gary Clyde Hufbauer, Peterson Institute for International Economics
and Woan Foong Wong, Peterson Institute for International Economics
September 2009
The worst financial crisis since the Great Depression is reflected in the augmented misery index for the first half of 2009. The consumer price index (CPI) rebounded during the first half of 2009, after a sharp drop in the second half of 2008. The unemployment rate increased sharply,1 and housing prices plunged. Along with the CPI figures, rising unemployment and falling housing values contributed to a three-fold jump in the augmented misery index: 24.9 in the first half of 2009 compared with 6.1 in the second half of 2008. This is the highest reading in our 25-year record. As might be expected, consumer sentiment remained almost as low as during the second half of 2008.
Yet, as he faced the challenge of the Great Crisis that erupted in 2008, President Obama retained his high post-election approval rating.2 This is one episode, perhaps unique, in which a president was judged far more by his bold program than by the woeful condition of the economy.
The second half of 2009 should bring a sharp improvement in the augmented misery index. Unemployment will creep up (already 9.7 percent in August 2009),3 but the CPI reading should be lower. Most importantly, housing prices will not fall nearly as much in the second half of 2009 as in the first half, and in fact a small rise in housing values seems possible.4 The latest press release from the Reuters/University of Michigan Survey of Consumers notes that "consumers expect the economy to improve in the months ahead even as they report the worst assessments of their personal finances since the surveys began in 1946."5 President Obama's approval rating is likely to remain high even if it drops from the elevated levels of early 2009. In the second half of the year, it seems that presidential approval will depend more on the outcome of the health care debate than on the speed of recovery.
View First Half 2009 Augmented Misery Index
Notes
1. In August 2009, unemployment reached 9.7 percent, the highest level in 26 years.
2. The Obama administration's crisis package was extraordinary. Team Obama bailed out mega-banks (Washington Mutual, Wachovia, and Citigroup), took over the quasi-public mortgage giants (Fannie Mae and Freddie Mac), forced the bankruptcy of Lehman Brothers, and rushed the acquisition of Bear Sterns and Merrill Lynch by stronger firms. Later it passed a giant stimulus bill and effectively nationalized General Motors.
3. Employment Situation Summary, Bureau of Labor Statistics, September 4, 2009 (web, September 14, 2009), www.bls.gov.
4. Contrast Brett Arends, "Home Prices: There's No Quick Recovery Ahead, Wall Street Journal, August 16, 2009 (web, August 28, 2009), http://online.wsj.com, with Jeff Bater and Maya Jackson Randall, "Housing Starts Post Moderate Rise," Wall Street Journal, September 17, 2009.
5. Reuters/University of Michigan Survey of Consumers. "Economy Set to Improve, but Finances Expected to Remain Weak," August 2009 (web, August 28, 2009), https://customers.reuters.com.
The Augmented Misery Index: Better Outlook in the Second Half of 2008
by Gary Clyde Hufbauer, Peterson Institute for International Economics
and Jisun Kim, Peterson Institute for International Economics
December 2008
In November 2008, we presented our augmented misery index , which adds the change in housing prices to Okun's original index. (The original index combined the inflation rate and the unemployment rate.) We have now updated the augmented misery index for the second half of 2008 . Compared to the first half of 2008, our augmented misery index improved sharply, dropping from 24.2 in the first half to 8.1 in the second half.
The improvement can be explained by both the fall in the consumer price index (CPI) and a less rapid decline in housing prices. The fall in the CPI mainly reflects plummeting oil prices. Housing prices continue to decline (adding to misery) but not so fast as during the first six months of 2008. The better misery index has so far made no difference to the consumer sentiment index or presidential approval ratings. However, the improvement may portend happier times in 2009.
Commentary Type