Misery Doesn’t Get Much Better Than This
About 90% of financial headlines remind me of that joke about the horse walking into a pub and the bartender asks: “Hey buddy, why the long face?”
Sure, there’s been a ton of manure coverage over the risks associated with the so-called trade war (read: negotiation), while all that cooked angst begins to boil over.
But is this “trade war” really having a major negative impact on the US economy?
Now that’s a tough question. In order to begin to find an answer let’s start with the Misery Index:
Now, the Misery Index was invented decades ago by Arthur Okum, and it originally consisted of the CPI inflation rate plus the unemployment rate.
Note how ugly that got in the 1970s during the Oil Embargo and then in the early 1980s as inflation his 15+% and unemployment rose to over 10%.
And for perspective, the world of naysayers back then was certain that: "We would never collectively make it out of that set of difficulties."
Keep in mind, a low reading means that inflation is low, and unemployment is low, and that brings a measure of stability to the life of the average working person.
But the above chart does make one minor modification.
It substitutes the rate of inflation according to the Core Personal Consumption Deflator (which also happens to be the US Federal Reserve’s preferred measure of inflation).
No matter how you calculate it today, the Misery index is as low as it has ever been in any of our lifetimes.
Both inflation and unemployment are very low, and that is great news for the average person, and it’s been getting even better during the last couple of quarters when we’ve allegedly been "engulfed in the Trade War with China...."
How about we review the benefits we are seeing on costs, revenues, and debt burden concerns?
We certainly hear plenty of that news mixed in with the tariff talk these days, right?
So, what can we take from these three charts? Well, they reveal a wide swathe of the real-life impact of all that we’ve been afraid of for years.
The first chart (above) shows the financial weight now being carried for debt on the average household. As much as the politicians, who seek billions in support of their dream for marketing themselves as the next President, would have you believe that this is the worst of times, the facts show very nearly the opposite view.
Despite our materialistic lifestyles and "ever-rising consumer debt" the average household's financial burdens today are no higher than they were 40 years ago!
There is much to be said about debt. Sadly though, suggesting to investors that anything other than zero debt can indeed be a positive is seen as heresy. And our world as we know it has not ended yet - even surviving the pits of March 2009.
The second chart (above) shows us something even more impressive.
When I was a kid, nearly one-quarter of the average person's annual spending went for just two things that every family required: Food and energy. Given the vast advances in productivity, education, technology, drilling advances, modern agriculture and greatly expanded global trade, that figure has now fallen to just a smidge over 10%.
Look for companies and technologies to improve even more such that the trade war tariffs can only become boring fodder for something scarier to report on, just to keep you watching the news.
As for the last chart above, well, somehow it seems the most impressive.
As much as we have been told our lives are hell because of the decades of dollar values lost, it illustrates the relative behaviour of the prices of services, non-durable and durable goods since 1995.
Not coincidentally, this starting point (1995) also happens to be the year that China started exporting durable goods to the world in earnest. If you consider that services prices are basically driven by wage and salary income, then one hour's worth of labour today buys about three times more durable goods than it did in 1995 (1.84/0.62).
Can you think of any other measure of material progress in recent years that is more impressive than this? Is there anyone who can't afford a flat-screen TV or a cell phone these days if they are working?
More Jobs Than People?
There are far more jobs going unfilled than there are people to fill them.
Bring on the robots, folks, without fear of anything more than getting a better job when lower-level repetitive jobs are replaced.
Here is snapshot of the average worker's nirvana: When there are more job openings than there are people looking for work. This, plus the fact that unemployment is very low makes the current environment the best time in many generations to be looking for a job.
This chart above is the result of dividing first-time claims for unemployment by the total number of people working. As Scott at Calafia explains, "This is akin to the probability that the average worker will find him or herself unemployed in a given month."
Currently that probability is less than 0.2%, and it's never been so low, by a long shot.
Misery doesn’t get much better than this.