The index is the sum of the unemployment rate and the inflation rate over the preceding 12 months. In normal times, the two indexes are likely to move in different directions, with inflation easing when unemployment rises, and climbing as the economy gets stronger and unemployment ebbs.
This year, however, both have been rising.
On Tuesday, the Labor Department will report on the inflation rate, as measured by the Consumer Price Index, for August. The consensus forecast of economists, according to Bloomberg News, is for a 5.6 percent rate. With the unemployment rate already reported at 6.1 percent, that would produce a misery index of 11.7 percent, up from July’s figure of 11.2 percent.
That rate has been rising rapidly, and in July was up 4.2 percentage points from a year earlier. If the consensus forecast is accurate, the August year-over-year rise will be 5.1 percentage points.
Before the Bush administration, there were only three presidential terms in which the misery index rose at least 4 percentage points over a 12-month span. The first was in 1949-53, and the second in 1973-77. In each case, the incumbent party lost the following election.
The third was President Carter’s term, from 1977 to 1981, when the combination of soaring oil prices and recession caused the misery index to peak at 21.9 percent. Ronald Reagan famously asked voters, “Are you better off than you were four years ago?” and defeated President Carter.
Concerns about the economy take on varying levels of importance in differing elections, of course. But when the misery index seems to be sending a strong signal, it has a good forecasting record.
We looked at the change in the misery index through August of each presidential election year. If the index had declined both over the preceding four years and over the most recent 12 months, that could be taken as a sign that the economy had improved in both the short and the long term. The reverse was true if the index had risen over both periods.
During the last 13 presidential election campaigns, from 1956 through 2004, both the short- and long-term changes in the misery index showed the economy was improving in four campaigns — 1964, 1984, 1988 and 1996 — and both short- and long-term changes showed the economy was worsening in four others —1960, 1968, 1980 and 1992. The incumbents held on when the signal was positive and lost when it was negative.
In the other five elections, the signals were mixed. In those years, the White House changed hands twice and was held by the incumbent party three times.
This year both the short- and long-term signals will be negative, which would seem to favor the Democrats. But there is one major difference this time. In all the elections in which the index forecast the outcome, the incumbent party nominated the sitting president or vice president.
This year, it was Senator John McCain, the Republican nominee, who ran a commercial saying that people were worse off than four years ago, and promised to bring changes. “On the face of it,” said Robert Barbera, the chief economist of ITG and the man who suggested I look at the misery index, “both candidates are running against the incumbent party.”
That has frustrated the Democrats, who no doubt will do their
best to tie Senator McCain to the record of President Bush.