Daily Spotlight: The Misery Index and Big-Ticket Spending

Summary

The decline in the “Misery Index” has stalled near 7% in recent months after peaking at 15% at the start of the pandemic and subsequently dropping from 12.6% in June 2022 to 6.7% in June 2023. The index is a measure of consumers’ well-being that adds the unemployment rate and the annual inflation rate — which are important to the Federal Reserve’s dual mandate of maximum employment and stable prices. The index was invented by economist Arthur Okun in the 1970s while he was at the Brookings Institution after leading President Johnson’s Council of Economic Advisors. To be sure, the index is below the 9.2% average since 1949 and well below “stagflation” peaks around 20% during the Ford and Carter presidencies. The five-year low was 5.2% in September 2019. Recent surveys of consumer sentiment have been volatile, with The Conference Board’s Consumer Confidence Index falling in February after three consecutive increases. Actual spending has been choppy too. Retail sales rose 1.5% on a year-over-year basis in February. The result was an improvement from January’s flat performance but weaker than December’s 5% rise. After the report, the Atlanta Fed’s GDPNow estimate for 1Q personal consumption growth declined to 2.2% from 2.9% on March 7. PCE remains the dominant driver of the Nowcast’s estimate for GDP to grow 2.3% in 1Q. A risk we have been monitoring is ongoing weakness in big-ticket discretionary spending. Record-high credit-card rates have made consumers reluctant to purchase items that may take months to pay off. Sales at electronics and appliance stores encouragingly turned positive in February, but building materials stores were off 6.1% while furniture and home furnishings stores declined 10.1%. Our analysis of last week’s employment report supports our expectation for a mid-year rate cut that could lift discretionary spending. Some improvement in inflation from this week’s CPI report would raise our confidence and lower the Misery Index.

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