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Misery Index: Purpose & Calculation

Instructor: David Bartosiak

Dave draws off his years of experience as a Financial Advisor and Analyst to teach others all about finance and the investing world.

This lesson details the commonly used misery index. The index is a combination of two metrics that quantify a country's labor situation and economic stability. Learn how to calculate the index and compare different countries around the world.

The Miserable Combo of Unemployment and Prices

The misery index is the combination of two economic data sets: the seasonally adjusted unemployment rate and the annual inflation rate. These two underlying data sets, when at inflated levels, are both negatives for the average citizen. Having a high unemployment rate means it's tough to find a job while having high inflation means prices are going up. High unemployment with prices on the rise would certainly lead to misery for the average joe. Simply put:

Misery index = unemployment + inflation

The seasonally adjusted unemployment rate is the percentage of the able-bodied workforce which is actively seeking employment but can't find a job. The number is reported on a monthly basis in the US by the Bureau of Labor Statistics.This rate is part of the monthly non-farm payrolls report. It's seasonally adjusted in order to try and remove seasonal patterns that develop in hiring. This way it gives a good perspective of the relative level of employment. It's important to note that retired-but-working and workers known as 'discouraged workers', individuals who have quit looking for a job, are not a part of this equation.

The annual inflation rate is the percentage increase in the price of goods and services consumers buy. It's a measure of how much everything costs. Prices have a tendency to increase over time. For example, McDonald's used to sell cheeseburgers for a few nickels. Nowadays, that cheeseburger will cost at least a dollar. Inflationary data comes from the US consumer price index report, also released by the Bureau of Labor Statistics. The reports are also released monthly, typically between the 11th and the 18th of each month. The consumer price index calculates the updated cost of a basket of goods and services relative to the same basket the previous period. This way the consumer price index, or CPI as it's commonly referred to, shows the change in the price of a broad sample of goods and services. The index includes housing prices, food and beverage, transportation, medical care, apparel, entertainment and other assorted goods and services. It's important to note that taxes are not included in the CPI calculation.

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