November 27, 2023

Weekly EconMinute—Misery Index

In this week’s EconMinute, we’re talking about  Alberta’s “misery index.”

The misery index is an indicator that gauges how the average individual is doing economically. It is a simple calculation (Misery Index = Unemployment Rate + Inflation Rate) where a higher number represents more economic stress and uncertainty.

It also offers an interesting comparison with Albertans’ perceptions of the provincial economy. Based on recent opinion polling, perceptions of the economy are gloomy:

  • Most Albertans say inflation is having a big impact on their life; and
  • More than a third of Albertans believe the provincial economy is getting worse (compared with just less than a quarter who believe it is improving).

So how do these perceptions jive with reality? Unfortunately, we do not have historical data on Albertans’ perceptions. However, we can get a sense of how bad things are compared to past economic hardships by looking at the misery index over time.

Based on the last few decades of data, here’s what we found:

  • In 1982, Alberta’s misery index peaked at 21% due to high inflation and unemployment (both of which were around 10%). This resulted from a global recession and a sharp decline in oil prices which followed the oil price shock of 1979.
  • Likewise, Alberta’s misery index reached a similarly high level in the recession of the early 1990s (16%) and again following the dot-com bubble of the early 2000s (15%).
  • In mid-2020, it hit its second-highest peak when it reached 17%. But this time was different: it was solely driven by an increase in unemployment (which reached 15%) and was short-lived, as government swiftly intervened with pandemic-related support.
  • Meanwhile, the recent historical average of Alberta’s misery index is around 8% (based on the decade leading up to the pandemic).
  • Currently, Alberta’s misery index sits at a mere fraction of these peaks and in line with this 10-year average—with unemployment at 5.8%, and CPI at 2.1%.

Why do people seem gloomier than the misery index would suggest? First, the index does not reflect all facets of economic well-being. Things like wage growth, housing affordability, concern for the future, and volatility of the energy industry are not well captured by this simple measure. Any of these factors could contribute to the discrepancy. In fact, most probably do.

Another potential factor is social media. Social media tends to amplify bad news over good with negative posts seeing far more reach. Although Alberta’s misery index is just a fraction of what it has been in past hardships, continuous exposure to negative narratives online could heighten economic concerns and impact individuals’ quality of life.

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