Jun 26, 2023 - Economy

The misery index is falling fast

The Misery Index
Data: Bureau of Labor Statistics; Chart: Axios Visuals

The White House and its allies are launching a full-court press to celebrate economic gains and set up core themes for President Biden's re-election campaign next year.

  • Beneath the rhetoric, there is a basic observation on which the Democratic pitch rests: The current mix of U.S. unemployment and inflation is entirely consistent with rates that have historically tended to get presidents re-elected.

Why it matters: While inflation is still uncomfortably high, the overall "misery index" — created by adding together the unemployment rate and inflation — has fallen precipitously over the last year.

  • Public opinion on the economy remains quite negative, yet recent history suggests voters can embrace a president seeking re-election, even with worse inflation and labor market conditions than we're experiencing now.

The misery index, invented by economist Arthur Okun in the 1970s as a shorthand for economic discomfort, is a crude measure, though simplicity can be a virtue.

By the numbers: In May, the index was 7.8%. That is lower than the misery indexes in the months that Ronald Reagan (11.4%), Bill Clinton (8.7%), George W. Bush (9%) and Barack Obama (9.5%) were re-elected.

  • Public opinion on the economy has been highly negative throughout Biden's time in the White House, in significant part reflecting high inflation. But there are some early signs that could be changing.
  • The preliminary University of Michigan sentiment survey for June surged, for example, as respondents' expectations for inflation over the next year plunged to 3.3%, from 4.2%.

What they're saying: "Sentiment is now 28% above the historic low from a year ago and may be resuming its upward trajectory since then," wrote Joanne Hsu, director of the Michigan survey.

  • She noted, however, that sentiment remains low by historical standards, and that "a majority of consumers still expect difficult times in the economy over the next year."

Reality check: There are 16 months between now and Election Day, and much could change.

  • Around this time four years ago, Democratic presidential candidates like Elizabeth Warren and Amy Klobuchar were examined for how they might shape their economic message amid the strong 2019 economy.
  • Not only did Biden win the Democratic nomination instead, but a global pandemic turned the economic backdrop of the 2020 race upside down from what had appeared likely a year earlier.
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