Focus on Economic Data: U.S. Employment and the Unemployment Rate, December 5, 2008
This lesson printed from:
Posted December 17, 2008
Author: Douglas Haskell
Posted: December 17, 2008
This lesson explores the December 5, 2008, U.S. Department of Labor, Bureau of Labor Statistics, announcement of employment data and the unemployment rate for the month of November 2008. The meaning and importance of the data are discussed. Students consider the implications of the data for themselves, their community, and the U.S. economy. Assessment exercises are included for reinforcing knowledge of the concepts.
- Review the most recently reported U.S. employment and unemployment data.
- Determine the changes in U.S. employment and unemployment from the past month and year.
- Determine the factors that have influenced the change in the U.S. unemployment rate.
- Explain the implications of the employment and unemployment data for individuals, population groups, and the U.S. economy.
Current Key Economic Indicatorsas of May 5, 2013
On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers decreased 0.2 percent in March after increasing 0.7 percent in February. The index for all items less food and energy rose 0.1 percent in March after rising 0.2 percent in February.
Total nonfarm payroll employment rose by 165,000 in April, and the unemployment rate was little changed at 7.5 percent. Employment increased in professional and business services, food services and drinking places, retail trade, and health care.
Real gross domestic product increased at an annual rate of 2.5 percent in the first quarter of 2013 (that is, from the fourth quarter to the first quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.4 percent.
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent...
Each month, the Bureau of Labor Statistics (BLS) releases data from the monthly "Household Survey" conducted by the Bureau of the Census, providing a comprehensive body of information on the employment and unemployment experience of the U.S. population, classified by age, sex, race, and a variety of other characteristics.
Also each month, the BLS Current Employment Statistics (CES) program surveys about 150,000 businesses and government agencies, representing approximately 390,000 individual work sites, in order to provide detailed industry data on employment, hours, and earnings of workers on nonfarm payrolls.
The BLS compiles information from these sources and announces the monthly "Employment Situation," reporting the current U.S. employment and unemployment data estimates.
The BLS Announcement:
U.S. Bureau of Labor Statistics: The Employment Situation, November 2008 (Data released December 5, 2008)
"Nonfarm payroll employment fell sharply (-533,000) in November, and the unemployment rate rose from 6.5 to 6.7 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. November's drop in payroll employment followed declines of 403,000 in September and 320,000 in October, as revised. Job losses were large and widespread across the major industry sectors in November.
[Note to teachers: Click on this link for the complete text of The December 5, 2008, BLS Employment Situation Press Release .]
Key Economic Indicatorsas of December 5, 2008
The Consumer Price Index for All Urban Consumers (CPI-U) decreased 1.0 percent in October, before seasonal adjustment. The October level of 216.573 was 3.7 percent higher than in October 2007.
U.S. Nonfarm payroll employment decreased by 533,000 jobs in November and the unemployment rate rose from 6.5 to 6.7 percent.
U.S. real gross domestic product decreased at an annual rate of 0.5 percent in the third quarter of 2008,(preliminary estimate). In the second quarter, real GDP increased 2.8 percent.
At its October 29 meeting, the Federal Open Market Committee decided to reduce the target for the federal funds rate by 1/2 percent (50 basis points) to 1.0 percent.
On December 1, 2008, the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) confirmed that the U.S. economy has been in a recession since December 2007. Economic data over the previous year has convinced the NBER committee that the U.S. economy has slowed to the extent that it fits their definition of a recession - reaching the peak of the expansionary period.
A key component of the data the NBER uses for business cycle tracking is "payroll employment." The NBER announcement explained, "The committee believes that domestic production and employment are the primary conceptual measures of economic activity. The committee views the payroll employment measure, which is based on a large survey of employers, as the most reliable comprehensive estimate of employment. This series reached a peak in December 2007 and has declined every month since then."
Click on this link for the complete text of the NBER's report, "Determination of the December 2007 Peak in Economic Activity "
The output of the economy (production) is regularly reported as real gross domestic product (GDP). Growth or decline in real GDP is typically used to illustrate the business cycle. Changes in the unemployment rate will generally follow the business cycles of GDP, illustrating the periods of growth, peak, recession, and trough of the business cycles. Figure 1 shows the U.S. monthly unemployment rates from 1970 to 2009, Q3.
Figure 2 shows the business cycles over the same period (1970-2008) defined by percentage changes in the level of real GDP.
Compare the two graphs. Are the general trends of real GDP growth and unemployment rates similar? Both seem to indicate cycles of growth and recession over time. Note that the changes from year to year are not always the same. In some periods, real GDP grew as a result of improved productivity, not greater employment. Still, the two trends (cycles) follow similar patterns over time.
Another key question about the report is the relative importance of the employment number versus the unemployment rate. Figure 3 compares the reported total employment number and the unemployment rate from 2000 to November 2008. Do the unemployment rate and level of employment change in a similar pattern year to year? Does one measurement lead or lag the other? Although they may not change in exactly the same way from year to year, is there a similar pattern over the time period?
|Figure 3: U.S. Real GDP Growth Rate and Unemployment, 1997-2008|
|Year||Real GDP Growth Rate||Year-to-Year Change||Unemployment Rate||Year-to-Year Change|
November 2008 Employment Data Details
The BLS announcement breaks down the employment and unemployment data in several ways. Below are the highlights of the December 5, 2008 BLS Announcement.
- The number of unemployed persons increased to 10.3 million.
- The unemployment rate increased to 6.7 percent.
- The number of unemployed increased by 2.7 million since December 2007.
- The unemployment rate increased by 1.7 percentage points since December 2007.
Unemployment by demographic group (Household Survey Data)
- The unemployment rate for adult men was 6.5 percent.
- The unemployment rate for adult women was 5.5 percent.
- The unemployment rate for teenagers was 20.4 percent.
- The unemployment rate for whites was 6.1 percent.
- The unemployment rate for blacks was 11.2 percent.
- The unemployment rate for Hispanics was 8.6 percent.
- The unemployment rate for Asians was 4.8 percent.
Total Employment and the Labor Force (Household Survey Data)
- The labor force participation rate declined by 0.3 percentage point to 65.8 percent.
- Total employment continued to decline, and the employment-population ratio fell to 61.4 percent.
- The number of persons who worked part time for economic reasons (involuntary part-time workers) was 7.3 million.
- The number of involuntary part time workers rose by 2.8 million over the past 12 months.
Industry Payroll Employment (Establishment Survey Data)
- Total non-farm payroll employment fell by 533,000 in November.
- Since December 2007, employment has decreased by 1.9 million.
- Two-thirds of the job losses occurred in the last 3 months.
- In November 2008, employment declined in all major industries, except health care.
The breakdown of the job losses extended to almost all industry groups, as listed below (BLS preliminary estimates).
- Non-farm employment (total unemployment) -533,000
- Goods-producing -163,000
- Construction -82,000
- Manufacturing -85,000
- Service-providing -370,000
- Retail trade -91,000
- Professional and business services -136,000
- Education and health services +52,000
- Leisure and hospitality -76,000
- Government +7,000
Take a Closer Look at Some of the Employment and Unemployment Data
- The report commented, "The number of persons who lost their job and did not expect to be recalled to work increased by 298,000 to 4.7 million in November. Over the past 12 months, the size of this group has increased by 2.0 million."
A large percentage of those losing their jobs in November do not expect those jobs to be recreated in a recovery. This may be evidence of structural change - unemployment due to imbalances between the skills and other characteristics of workers in the market and the demands of employers. The unemployed workers lack the skills required for available jobs or jobs are available in different geographical regions than the workers.
If larger numbers of workers think they will not regain jobs with their former firms or in the same region, what additional problems result? The unemployed may face the need to retrain, moving to another region, or taking jobs for which they are over-skilled. If larger numbers of workers lose jobs for these structural reasons, their unemployment may not end, even when the level of economic activity eventually improves.
- The report commented, "The number of long-term unemployed (those jobless for 27 weeks or more) was 2.2 million in November, up by 822,000 over the past 12 months."
Federal law allows for a base of 26 weeks of unemployment compensation, with a potential 13 week extension. Under some circumstances, benefits may be extended, but most benefits will end at 39 weeks. When unemployment extends for a longer period, what additional problems do those who are unemployed face?
- The report commented, "In November, the labor force participation rate declined by 0.3 percentage point to 65.8 percent. Total employment continued to decline, and the employment-population ratio fell to 61.4 percent."
It appears that larger numbers of people may simply have "given-up" trying to find work. In this case, they are no longer included in the determination of the unemployment rate. How many "uncounted" unemployed are there?
- The report commented, "Over the month, the number of persons who worked part-time for economic reasons (sometimes referred to as involuntary part-time workers) continued to increase, reaching 7.3 million. The number of such workers rose by 2.8 million over the past 12 months. This category includes persons who would like to work full-time but were working part-time because their hours had been cut back or because they were unable to find full-time jobs."
Many people are working at a job (and pay) below their level of training or ability. Or, maybe they can work enough hours to earn the income their family needs. While not technically "unemployed," these workers are "underemployed." Again, the unemployment rate may not accurately reflect the extent of the economy's problems. Should these people be counted as "unemployed" to some degree?
- The report commented, "About 1.9 million persons (not seasonally adjusted) were marginally attached to the labor force in November - 584,000 more than 12 months earlier. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Among the marginally attached, there were 608,000 discouraged workers in November, up by 259,000 from a year earlier. Discouraged workers are persons not currently looking for work specifically because they believe no jobs are available for them."
Again, some workers have given-up looking for employment. As jobs become more scarce, they see little benefit from more searching. Is this evidence of even more serious economic problems?
Weekly Hours Worked and Earnings
From the BLS Establishment Survey, it was determined that in November, the average workweek for production and non-supervisory workers decreased by one-tenth of an hour to 33.5 hours. This was the lowest average workweek level in the history of the series, which began in 1964. At the same time, average hourly earnings of production and non-supervisory workers increased by 7 cents, or 0.4 percent. Over the past 12 months, average weekly earnings have risen by 2.8 percent. In fewer hours, those workers who were employed earned slightly more income.
|Average Hourly Earnings,
Total Private Employment
|Change||Oct. - Nov.||+$.07|
|Average Weekly Earnings,
Total Private Employment
|Change||Oct. - Nov.||+$.052|
The BLS December 5 employment and unemployment report confirms the NBER Business Cycle Dating Committee’s decision that the U.S. is now in a recession.
The U.S. economy lost over 500,000 jobs in just the month of November and the unemployment rate increased to 6.7 percent. U.S. gross domestic product has also decreased. Financial markets continue to be in turmoil, as businesses and consumers continue to find it difficult to finance investments and purchases. Stock markets continue their rollercoaster ride – up triple digits one day and down triple digits the next – reflecting uncertainty about the future.
The Bush administration and Congress are exploring a variety of ways to jump start the economy, including the $700 billion aid package (TARP) already passed and hundreds of billions of dollars for potential new programs. Millions of homeowners face foreclosure and have asked for relief. U.S. automakers have asked for billions of dollars in loans or investment just to stay in business for a few months. Many consumers are asking, “where is our share?”
- What can the president and Congress do? [stimulus for consumers (tax cut or rebate), stimulus for producers (tax credits, loans, government purchases), reduce regulations, make funds available for investment, more government spending (infrastructure, etc.)]
- What can the Federal Reserve do? [ower interest rates, increase access to loan funds]
- What can businesses do?[create jobs, invest in technologies and/or new production]
- What can you do? [spend more on goods and services, take greater advantage of lower interest rates]
Why did the NBER decide that the U.S. entered a recession in December 2007? [The NEBR concluded that the decline in payroll employment since December 2007 was evidence enough, despite the face that GPD had only begun to decrease in the last quarter.]
- Which of the statistics in the December 5 BLS report is most important to you in understanding the state of the U.S. economy? [The students should be able to provide a rationale for the data they select as the most important. This can provoke a good discussion and debate over the relevance of the data.]
The Social Security Act of 1935 created the Federal-State Unemployment Compensation Program. The program’s objectives are to provide temporary and partial wage replacement to involuntarily unemployed workers and stabilize the economy during recessions. The program is coordinated by the U.S. Department of Labor and administered by the individual states.
Federal law imposes a 6.2 percent tax rate on the first $7,000 paid annually by covered employers to each employee. Employers in states with programs approved by the federal government may credit 5.4 percentage points against the 6.2 percent tax rate, making the minimum net federal unemployment tax rate 0.8 percent.
To qualify for benefits, a person usually must have worked recently for a covered employer for a specified period of time and earned a certain amount of wages. About 97 percent of all wage and salary workers and 89 percent of the civilian labor force are covered by the program.
Each state develops method for determining unemployment compensation eligibility, including these three general criteria: (1) the amount of recent employment and earnings; (2) demonstrated ability and willingness to seek and accept employment; and (3) disqualification based on some reasons for the job loss.
The states set weekly benefit as a fraction of the individual's average weekly wage up to some pre-determined maximum. The total maximum duration available under permanent law is 39 weeks. The regular state programs usually provide up to 26 weeks and the Federal-State Extended Benefits Program provides up to 13 additional weeks in states with high unemployment rates. The unemployed in a few states are eligible for an additional 7 weeks is available under a law enacted in 1992. The weekly benefits allowed by states usually provide 50 to 70 percent of the individual's average weekly pretax wage up to the maximum.
The average weekly wage is often calculated only from the calendar quarter in the base year in which the claimant's wages were highest. Individual wage replacement rates tend to vary inversely with the claimant's average weekly pretax wage, with high wage earners receiving lower wage replacement rates. Thus, the national average weekly benefit amount as a percent of the average weekly covered wage was only 35 percent in the quarter ending December 31, 1999.
What would you do ?
Fred Dixon is 47 years old and works for a large manufacturing company. Due to very slow world-wide sales, the company is closing the plant where Fred works. Last year Fred earned $58,550. That provides $1,126 gross and $754 net pay per week. Fred, his wife Mary, and their two children had comfortable lives and have accumulated $40,000 in a savings plan. He has a pension plan, but is not old enough to use it. Mary earns an average of $400 net pay each month working part-time. Their total net income is $854 per week.
Fred will be eligible for his state’s unemployment compensation plan when the plant closes. The plant closing is permanent and there are very few similar jobs available in their area. The state will cap his payments at 60 percent of his net pay, so Fred will receive $452.40 each week or $1,810 per month. With Mary’s part-time income, they will have a total income of $2,210 per month. Previously, they had a net income of $3,416 each month.
The Dixon family’s net income will now be just two-thirds of what it used to be. Their mortgage payment, including taxes and homeowner’s insurance is $900 per month. Their auto loan payment is $362 per month. After these obligations, they will have just $948 per month for other spending. Previously, they were able to spend or save an additional $1,854 each month. Clearly, they will have to make some changes.
If Fred and Mary come to you for advice about how they can survive the time until Fred find’s a new job - probably most of the 39 weeks he is eligible for unemployment payments, what will you suggest? [Student responses will vary. Students can discuss the advantages and disadvantages of Fred and Mary's options - How can they save? How can they cut their spending? How can they increase their income? How can they better prepare for these kinds of problems?]