Posted by: Josh Lehner | January 5, 2022

The Corporate Misery Index

Most readers are likely familiar with the Misery Index, a calculation created by economist Arthur Okun in the 1960s. It’s the sum of the rate of inflation and the unemployment rate. As such it’s a relative gauge of how households are doing. While unemployment is declining today as the economy recovers, inflation has picked up, reversing the recent improvements in the standard misery index.

Today, between labor challenges and rising input costs, businesses are miserable as well. Inflationary booms are challenging. The newly created Corporate Misery Index combines rising prices and the job opening rate to gauge the supply constraints firms are facing in the economy. Now, given the strong consumer demand, companies have been able to pass along their cost increases during the pandemic. Corporate profits are at record highs, which means they financially offset the day-to-day challenges of running a business, even as those challenges are larger than at any point in recent decades.

Digging into the data further reveals an interest pattern across sectors here in Oregon. In the scatterplot below, the horizontal axis shows the current job opening rate in Oregon. This gauges how many employees companies would like to hire, relative to the size of their existing workforce. The further an industry is to the right, the larger its current labor challenges. On the vertical axis is the increase in costs at the national level from various production and consumer price indices. Given available data the comparison is not perfectly aligned at the sector level but the results are intuitive and broadly in line with what firms in different sectors are saying.

In the upper-right corner are the sectors that are grappling with the largest increases in costs and the largest labor challenges. This includes goods-producing industries like construction and manufacturing, in addition to leisure and hospitality.

In the upper-left corner is transportation, warehousing, and utilities. The costs of logistics in terms of transportation and storage costs are rising rapidly, and industrial and warehousing vacancy rates are declining. However the industry is not facing quite as large of labor challenges, likely in large part because the sector has been raising wages and experiencing really strong job growth already. These gains include drawing in workers from other sectors like retail, manufacturing, and construction.

In the lower-right corner are industries like health care and other services (repair shops, barbershops and nail salons) which are looking to hire a lot of workers today but are not currently facing as strong of price pressures as the economy overall. Finally in the lower-left corner are sectors where they are generally struggling with labor and cost challenges but to a lesser degree than most other industries.

Looking forward, businesses are likely to continue to struggle with day-to-day operations given labor challenges and cost pressures. The outlook calls for corporate misery to ease some in the quarters ahead as labor supply returns some and price pressures abate. However, it is likely corporate misery will remain higher in the years ahead than during the previous couple of decades. The real corporate struggles still lie ahead and will be financial and operational in nature when they are no longer able to fully pass along their cost increases to consumers who at some point will be unwilling or unable to absorb them.

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