The “Misery Index” shouldn’t give President Barack Obama reason to despair.
Economic misery, measured as a combination of unemployment and inflation, is lower now than before the Democrat won the race for the presidency in 2008. Such a decline suggests a “narrow re-election” for Obama next month over Republican challenger Mitt Romney, according to Deutsche Bank AG senior economist Carl Riccadonna.
Economist Arthur Okun developed the index in the 1970s, adding unemployment and consumer-price inflation together to grade the state of the economy. In the most recent quarter, the U.S. unemployment rate was 8.1 percent and inflation 1.6 percent. The misery index was 9.7 percent last quarter, down from 11.3 percent in the comparable quarter before Obama was elected, a Deutsche Bank report showed Oct. 5.
The index has predicted nine of the past 12 elections and was only marginally off when it failed to forecast George W. Bush’s re-election in 2004, New York-based Riccadonna found. If the threshold for the index is raised to account only for instances when there were full percentage-point moves or greater during a president’s term, it accurately called every outcome, he wrote.
The picture became less clear when Riccadonna considered the importance of the Electoral College, which determines the winner based on how each state votes. Assuming that the results in 13 states, many of them so-called swing states, are hard to call, and using the most recent state data for the second quarter, he calculated an average misery index for those states of 9.5 percent. That compares with a national average of 10.1 percent.
If votes are apportioned according to the level of the misery index and only those above the national average tilt to Romney, then Obama wins, Riccadonna said. The incumbent also stays in the White House even if the four states that are clearly worse off than four years ago favor the Republican.
Then again, if all states with an index now above the 9.5 percent average back Romney, he would secure the White House. The same happens if the states whose indexes are only marginally lower than four years ago unite with the worse-off ones.
Alex Kowalski contributed to this post