Analysts at Swiss Re expect economic distress to remain elevated for average US citizens over the next year, with increases a real threat as the likelihood of stagflation and recession has substantially risen.
In the US, Swiss Re notes that the misery index is now in the highest 20% of readings over almost 50 years, an indicator of mounting economic pain to citizens.
The cause is high inflation, and analysts see lower-wage workers as particularly vulnerable due to their exposure to both relatively high unemployment and the greatest erosion of their purchasing power.
The misery index is a sum of the unemployment and inflation rates that gauges the average citizen’s economic wellbeing.
Swiss Re contends that the index tells a story masks by the strong labour market and rising wages in the US, the gains of which are being eroded by inflation.
The misery index reached 11.7 in February, which is in the 80th percentile of all readings since 1978, due to the rising cost of living.
Swiss Re forecasts the misery index to rise further in the coming months, despite low unemployment, as inflation is yet to peak.
“Though price pressures should then ease, we expect rising unemployment in late 2022 to partly offset this, as price and supply challenges amid tightening monetary policy create a marked slowdown in economic activity,” analysts said. “This suggests US households are likely to feel under pressure throughout this year.”
What’s more, soaring oil prices since the invasion of Ukraine, coupled with the imminent start of monetary policy tightening, are weighing further on the US growth outlook.
“Achieving a soft-landing becomes increasingly less likely the longer the global commodities’ shock lasts,” Swiss Re went on. “This environment of high inflation and slowing growth increases the combined likelihood of a stagflation or recession in the next 12-18 months.”
Lower-income households are considered much more exposed to stagflation than those on higher incomes through rising prices for essential goods, and a recession would see unemployment increase more substantially for lower-wage households, leaving risks skewed towards a worsening in economic distress for the average US citizen.
