Strategic Insights Business Recovery in the USA and Canada

If media reports are to be believed, Canadians look to be a particularly unhappy lot right now. The recent bout of inflation and interest rate rises appear to have precipitated a specific phase of economic suffering that has spilled over into personal lives, and that misery appears to be uniform across demographic and socioeconomic categories. According to one survey, financial troubles, inflation, and high interest rates are having an impact on Canadians' mental health, driving concern about housing and food. Millennials, particularly those who own a home, appear to be the most vulnerable to economic downturns as interest rates rise on tight debt burdens and economic damage wreaks havoc on the economy and expectations. Burdened by debt and rising housing expenses, three-in-ten Canadians are "struggling" to make ends meet, with mortgage holders reporting trouble meeting housing bills up 11% from last June. If you have a place to live, you struggle to pay your bills, and if you don't, you're unhappy because you can't locate one.   

With so much misery, it's amazing that the misery index. 

hasn't been revived by various pundits as a metric for how wretched we all are. The misery index is an economic measure developed by economist Arthur Okun in the 1970s, during a period of high inflation and unemployment known as stagflation caused by the oil price shock and its macroeconomic impact. The misery index was created by adding the inflation rate with the unemployment rate, with higher totals indicating greater economic hardship for the general people. The index has occasionally been expanded to include factors such as the bank lending rate. While not a perfect measure of economic welfare, it may be instructive to determine whether such an index captures the current atmosphere of economic anguish and despair. The accompanying figure, based on data from the St. Louis Federal Reserve Bank's Federal Reserve Economic Data (FRED) source, depicts a monthly triple misery index consisting of the sum of Canada's CPI inflation rate, monthly unemployment rate, and central bank rate from 1962 to 2023. Such a long time span allows us to evaluate Canadian sorrow over time, which is extremely eye-opening. 

The 1960s were a really golden age for the economy.

but they were also characterized by some of the lowest levels of misery in sixty years. Misery began to rise in the 1970s and appears to have peaked in the early 1980s, when the unemployment rate peaked at 13 percent, inflation peaked at more than 12 percent, and the bank rate, believe it or not, hit over 20 percent one month, making the current 5 percent look like a monetary tea party. Janice Nelson created the graphic After peaking in the early 1980s, misery fell, rebounded somewhat in the early 1990s, and then fell again, progressively bottoming out to values slightly lower than even the 1960s in 2017. Since 2017, they have risen, and according to the data, we are now at least as unhappy as we were in the 1990s. From 1962 to 2023, the triple misery index averaged 16.8. As of June 2023, the Canadian misery index is 15—just slightly lower than the historical average. The most wretched month in Canada was August 1981, when the misery index reached 40.6. During that month, the unemployment rate was 7.2%, the bank rate was 20.9%, and inflation was 12.5%. The least miserable month in Canada was June 2017, with a rating of 8. The unemployment rate was 6.2%, the bank rate was 1%, and inflation was just above 1%.

The misery index depicted below shows that misery has increased. 

since 2017, yet it is still lower than the historical average—and even lower than the early to mid-1990s. It is significantly lower than the period spanning the mid-1970s to almost 1990. However, talking to individuals and following social or mainstream media gives the impression that things are far worse than the misery index suggests. So, why are Canadians so unhappy, considering that the misery index is not near historical highs?  This is a confusing and essential question. One argument is that the indicator may not adequately capture Canada's current misery because misery is more than the sum of unemployment, interest, and inflation rates. Perhaps we could include more economic variables, such as the growth rate of real per capita GDP, or create a separate inflationary index for rentals and housing. This would imply that the structure of unhappiness is no longer as simple as it once was, but has become more complicated and diversified, much like the country as a whole, and that the misery index need a significant overhaul.  Another explanation is the age-old adage that timing is important in both life and politics. While the recent rise in unhappiness is minor in comparison to earlier historical periods, it follows a nearly two-decade period of low and declining misery. It also comes after a global pandemic and several years of anxiety, change, and disruption, which have made everyone more irritable and less tolerant than usual.