An effective indicator of US misery

Most Americans don't need statistics to remind them that they feel lousy. But in case they do, there's always the misery index, the sum of the US unemployment rate and inflation. The measure serves as a pretty good indicator of consumer sentiment .

The index currently stands at 9.2 percent. That's the highest reading since October 2005 and up from 5.8 percent in December 2006. From 1990 through 2007, the index averaged 8.4 percent. Thanks to declining US unemployment rates and restrained inflation, readings above 9 percent were unusual since the early 1990s.

The good times, though, are fading. Slowing US growth, which augurs increased unemployment, and accelerating inflation, fueled by high energy and food prices, suggest the misery gauge is headed higher, and is probably a precursor of recession.

"Many folks have forgotten about the misery index, with strong US employment growth and modest price increases subduing the metric for the better part of this decade," says Joseph Quinlan, New York-based chief market strategist at Bank of America Capital Management. "That said, our hunch is that the index is about to make a comeback and garner a great deal more attention this year."

Michael R. Sesit is a Bloomberg News columnist. The opinions expressed are his own.

(China Daily 03/04/2008 page17)