The Misery Index is an economic indicator, created by economist Arthur Okun. The misery Index helps determine how the average citizen is doing economically and it is calculated by adding the seasonality adjusted unemployment rate to the annual inflation rate.
It is a measure of economic well-being for a specified economy, computed by taking the sum of the unemployment rate and the inflation rate for a given period. An increasing index means a worsening economic climate for the economy in question and vice-versa.
The main assumption in this index is that an increasing unemployment rate and relatively high inflation have a negative impact on economic growth. At its highest, the misery index for the U.S was at 21.98% in June 1980. At its lowest, it was 2.97% in July 1953.
Since both high unemployment and high inflation are major factors to the average wage earner, it’s a quick and dirty metric to gauge the health of the economy because as inflation rises the cost of living increases and as unemployment raises more people cross the economic line into poverty.
In economic terms, a rise in inflation coupled with high unemployment leads to lower consumer expenditures and contributes to an economic slow-down.
The Original Misery Index was created by economist Arthur Okun during the Johnson administration in the 1960’s, not by Robert Barro as some people mistakenly believe. Barro created the “Barro Misery Index” (BMI) in 1999, which also includes interest rates and GDP trend into the mix.