FORECASTS & TRENDS E-LETTER
by Gary D. Halbert

August 3, 2021

IN THIS ISSUE:

1. The Return of the Long-Forgotten “Misery Index”

2. 2Q GDP Comes In Well Below Pre-Report Expectations

3. Gallup: Who Do You Trust? Depends On Your Politics

Overview

Today, we’ll touch on several bases, as I often do. I’ll start by revisiting the so-called “Misery Index”, which I suspect many of you may never have heard of. It’s an economic indicator devised in the 1960s, but we’ve heard it mentioned rarely in the last 40 or so years, until just recently.

Following that discussion, I will review last Thursday’s disappointing 2Q GDP report. Most forecasters missed this one big time and were very disappointed. I’ll tell you why I think it was still a very encouraging report.

Finally, I want to encourage all of my Forecasts & Trends subscribers to sign up to receive my “Between The Lines” (BTL) column I post every Thursday. BTL is free, it is much shorter than F&T and I often cover subjects and topics I don’t write about in F&T.

My latest BTL is a perfect example. I ran across a recent Gallup survey which included some very interesting political insights I had not seen elsewhere. I wrote about them in BTL last Thursday. You can see that column by clicking HERE. Better yet, I encourage you to become a subscriber so you’ll have access to everything I write.

The Return of the Long-Forgotten “Misery Index”

I would venture that most Americans under the age of 65 have probably never heard the term “Misery Index” until the last couple of months, if at all. As such, most Americans don’t know what the Misery Index is, how it is calculated or what it means for the economy.

The reason most people haven’t heard of the Misery Index is because it hasn’t been mentioned much over the last 40 years since it has remained relatively low. But in the last year, it’s been on a steady rise again. So, economists are dusting off this index and reminding us it still exists.

The Misery Index is a simple calculation: It is the sum of the latest US inflation rate (CPI) and the latest US unemployment rate. The Misery Index for June was 11.3 as the unemployment rate edged up to 5.9% and the CPI rose to an annual rate of 5.4%.

U.S. Misery Index (Unemployment Rate + Inflation Rate)

Source: InflationData.com

The Misery Index was actually created and named as such back in the 1960s by economist Arthur Okun during the Lyndon Johnson administration. The idea is that living conditions for many Americans worsen when the Misery Index rises and improve when the Index falls.

The Index peaked in the late 1970s and early 1980s when we had soaring inflation and several recessions. The Misery Index climbed to its highest levels ever, near and above 20, as you can see above. Those were, by the way, the same years in which I was building my investment career and paying close attention to all things market and financial related.

The reason the Misery Index has crept back into the economic narrative this year is because it has risen every month since President Biden took office. To be clear, I don’t discuss it today to criticize President Biden; instead, I do so just because it’s an old economic term which has just recently come back onto the scene. And as noted above, I doubt many under the age of 65 have ever heard the term before

Source: IssuesInsights.com

2Q GDP Comes In Well Below Pre-Report Expectations

Last Thursday morning, the Commerce Department released its first estimate of 2Q Gross Domestic Product, and the “advance” report fell well below forecasters’ expectations. The pre-report estimate from economists surveyed ahead of time was for a rise of 8.4% (annual rate).

Oops. The report came in with 2Q growth of only 6.5% annualized. That is very strong growth, mind you, but it is one of the most significant pre-report “misses” I can remember in some time. The financial media was at a loss to explain it. Frankly, I don’t see the miss as a big deal. Let’s look at the big picture.

As you can see from this chart, GDP tends to hover in a fairly tight range of +2-3% to down 2-3% once in a while when we have a recession. Of course, last year we saw wild swings like we’ve not experienced since the Great Depression.

Real GDP plunged over 30% (annual rate) in the 2Q of last year as the lockdowns shocked the nation. But then the economy snapped back strongly in the second half of last year, with GDP surging over 30% in the 3Q as many businesses reopened.

Growth continued to rebound in the 4Q of last year and another 6.3% (annualized) in the 1Q of this year. But even with the strong rebound in the 3Q and 4Q of last year, and the strength in the 1Q of this year, the economy was still not back to where it was pre-pandemic.

The good news, however, is that the latest report on 2Q GDP growing by 6.5% means the economy has now fully recovered from the COVID-19 recession. We can all celebrate this accomplishment, but we need to keep in mind the rebound has been largely due to massive government stimulus spending which put us trillions deeper in debt.

Was it worth it? As long-time readers know, our national debt is a “soapbox issue” for me, but I won’t go there today. I’ll leave it up to you to decide. Time to move on to our next issue.

Gallup: Who Do You Trust? Depends On Your Politics

Last week, we got the results from Gallup’s latest survey ranking Americans’ confidence in some of our most important institutions – including the police, the church/religion, labor unions, public schools, TV and newspapers and even Congress and the presidency.

Most interesting: Gallup separates the responses by political party -- Republicans versus Democrats. The results may surprise you, as they did me. Here are just a few highlights:

There are even more interesting findings in the latest Gallup survey which you can read in last Thursday’s Between The Lines. While you’re there, I encourage you to become a subscriber so you’ll have access to everything I write.

I publish BTL every Thursday. It is a lot shorter than Forecasts & Trends and I often write about topics I don’t cover in this E-Letter, including political discussions from time to time. If you enjoy reading F&T, then I think you will enjoy BTL as well.

I’ll cut this issue of F&T short so you can jump over to last week’s issue of BTL and read the very interesting results of Gallup’s latest survey on trust in public institutions.

Best personal regards,

 

Gary D. Halbert

SPECIAL ARTICLES

Brief History of the Misery Index

2Q GDP Falls Short of Forecasts, But Still Strong
 

Results of Latest Gallup Survey

 

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