The recent financial crisis has outdone the Great Depression in creating misery, according to our “New Misery Index”.

The New Misery Index adds the variable of personal net worth to the traditionally combined impact of inflation and unemployment. Unlike the old index, the updated version shows a sharp increase in recent personal economic pain.

Annually 1929-2008, with 1Q and 2Q 2009

Sources: For household net worth data: For 1929-1941 (billions of 1958 dollars), Frederic S. Mishkin, “The Household Balance Sheet and The Great Depression,” Journal of Economic History 38 (December 1978), p. 920; 1928, 1942-1944 data is estimated; 1945-2008 data from the Federal Reserve. For CPI and unemployment: Bureau of Labor Statistics.

* CPI and household net worth track year-over-year percentage change; unemployment is expressed as a flat rate.

“Understanding what’s going on today may give us a better perspective on future economic possibilities and market opportunities,” said Nick P. Calamos, Senior Executive Vice President and Co-Chief Investment Officer, and John P. Calamos, Chairman, CEO and Co-Chief Investment Officer in their most recent Market Review and Outlook. “We tracked down household net worth figures back to 1928 and combined them with the old misery index. The result indicates that the initial economic shock of the past year and a half has created a spike in “misery” more acute than during any other period we considered, including the Great Depression, though unlikely to last as long.”

The old misery index showed 1973-1981 was the roughest period for households since the Depression, but portrayed 2008 as relatively mild despite the onset of the global financial crisis.

“Clearly, this index needed some updating,” they wrote. “This current crisis has been extraordinary by many economic measures. Misery is not only inflation and unemployment but also a decrease in net worth… This episodic shock has been defined by its dramatic negative impact on household net worth as housing, financial assets, pensions, real estate and just about every risk asset has declined significantly.”

Fortunately, current misery may not last as long as the Depression-level misery.

“We believe it is unlikely that misery will persist at this high level for as long as it did during the Depression,” they wrote. “Nonetheless, the new misery index illustrates the true, punishing impact on the economy and the average household, especially those Baby Boomers who are nearing or entering retirement age. The time for these individuals to rebuild net worth is short, so the savings rate should remain high for the foreseeable future. Keep in mind this is a volatile index and rebounds can occur quickly.”

To view the entire Market Review and Outlook, click here.