Focus on Economic Data: U.S. Employment and the Unemployment Rate, December 04, 2009
This lesson printed from:
Posted December 22, 2009
Author: Douglas Haskell
Posted: December 22, 2009
This lesson examines the December 4, 2009, U.S. Department of Labor, Bureau of Labor Statistics, announcement of employment data and the unemployment rate for the month of November, 2009. This lesson introduces the basic concepts of the BLS employment and unemployment data. The meaning and importance of the data are discussed. Assessment exercises are included for reinforcing knowledge of the concepts.
- Review the December 4, 2009 BLS announcement of 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.
The BLS also conducts the Current Employment Statistics (CES) program, surveying 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 monthly announcement reports employment data from the previous full month.
This lesson is about the December 4, 2009, BLS announcement, "Employment Situation: November 2009." This lesson will also look at employment data relative to other macroeconomic data (GDP, CPI, etc.)
[Note to teacher: Employment and Unemployment Rate Focus on Economic Data Schedule:
During the first half of this school year, (September-January), EconEdLink will publish five Focus on Economic Data lessons on "employment and the unemployment rate." During this time period, the lessons will begin with the 'basics' in September and progressively focus more on complex data, issues and comparisons. All monthly lessons will include the current data and significant recent changes.
- September: employment and unemployment basics. What is the level of employment? What is the unemployment rate? How are they measured? What do they mean?
- October: details and issues about the measurement and meaning of employment and unemployment, adding concepts such as underemployment, full employment, etc.
- November: detailed breakdown of the data by region and industry (trends, identifying trends and comparisons of regions and demographic groups).
- December: the relationships of employment and unemployment data to other economic data, such as GDP, CPI, etc., and the business cycle.
- January: school year-end review and final analysis.]
Key Economic Indicatorsas of December 4, 2009
On a seasonally adjusted basis, the U.S. Consumer Price Index for All Urban Consumers (CPI-U) rose 0.3 percent in October. The index has decreased 0.2 percent over the last 12 months on a not seasonally adjusted basis.
The U.S. unemployment rate edged down to 10.0 percent in November, and nonfarm payroll employment was essentially unchanged, losing just 11,000 jobs. In the prior 3 months, payroll job losses had averaged 135,000 a month. In November, employment fell in construction, manufacturing, and information, while temporary help services and health care added jobs.
U.S. real gross domestic product increased at an annual rate of 2.8 percent in the third quarter of 2009. This was adjusted from the October advance estimate for Q3 of 3.5 percent. In the second quarter or 2009, real GDP decreased 0.7 percent.
The FOMC will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
Is the recession over?
Bureau of Labor Statistics Announcement: The Employment Situation - November 2009
Released December 4, 2009
"The unemployment rate edged down to 10.0 percent in November, and nonfarm payroll employment was essentially unchanged (-11,000), the U.S. Bureau of Labor Statistics reported today. In the prior 3 months, payroll job losses had averaged 135,000 a month. In November, employment fell in construction, manufacturing, and information, while temporary help services and health care added jobs."
The loss of only 11,000 jobs in November came as a big surprise to many analysts, economists, and the media. It was considerably less than most employment estimates. In addition, the BLS revised the employment data for the preceding months. "The change in total nonfarm payroll employment for September was revised from -219,000 to -139,000, and the change for October was revised from -190,000 to -111,000. These revisions decreased the total number of job loses in those months by 159,000.
What Does This Mean?
Some say this is evidence of a turn-around in the economy. Some say it confirms the opinion of many that the recession is over, given that employment losses steeply declined and employment lags other economic data. To some, using a more traditional definition of a "recession" say that the recession will not be over until there is confirmed positive job and GDP growth. Others point to the positive real GDP growth in Q3 as a sign of recovery - confirmed by the November employment data. It is possible that the January 2010 employment announcement will adjust the December estimate to positive job growth - or not.
This recession may not be following any "rules" of typical recessions. Then again, the U.S. has not experienced a recession of this depth or length since the 1930s Great Depression. A more detailed look at the employment and unemployment data will give us a better feel for the current condition of the economy and the prospects for a significant recovery.
[Note to teachers: This is an opportunity to illustrate how economic data can have different meaning to different people. The Obama administration used this data to argue that the stimulus policies are beginning to work. Republicans, on the other hand, continue to argue that the stimulus is artificially creating jobs that will disappear without continued federal dollars and that more pro-business policies are what is needed for meaningful growth.]
Household Survey Data
[NOTE: The Household Survey data is drawn from a monthly survey of approximately 50,000 U.S. households. It is primarily used to determine the unemployment rate. Household respondents are asked questions about whether or not they worked and/or were looking for work in the month.]
"In November, both the number of unemployed persons, at 15.4 million, and the unemployment rate, at 10.0 percent, edged down. At the start of the recession in December 2007, the number of unemployed persons was 7.5 million, and the jobless rate was 4.9 percent. Among the major worker groups, unemployment rates for adult men (10.5 percent), adult women (7.9 percent), teenagers (26.7 percent), whites (9.3 percent), blacks (15.6 percent), and Hispanics (12.7 percent) showed little change in November. The unemployment rate for Asians was 7.3 percent, not seasonally adjusted."
Figure 1, below, shows the labor force and unemployment data for October and November, and the change from October to November. Note that unemployment for every primary demographic group improved somewhat, and that the improvement was grater among the groups with the highest unemployment rates - Hispanic/Latino ethnicity and teenagers.
Looking at the labor force data, note that the size of the civilian labor force declined by 98,000 and the number of persons "not in the labor force" increased by 291,000. Given that the unemployment rate is determined as the number of unemployed as a percentage of the labor force, the decrease in the labor force may mean that the "real" rate of unemployment is slightly lower. It is 10 percent of a smaller group.
[Note to teachers: Is the drop in the unemployment rate meaningful. Students can assess the accuracy and real meaning of the employment data. They can suggest other ways to assess the health of the economy. Example: Should marginally attached workers be counted as somehow unemployed? Is a discouraged worker still unemployed?]
|Figure 1: Labor Force and Unemployment Data
Oct. - Nov.
|Civilian Labor Force||153,975||153,877||-98|
|Not in Labor Force||82,575||82,866||291|
U.S. Unemployment Rates
Oct. - Nov.
|Black or African American||9.5||9.3||-0.2|
|Hispanic or Latino Ethnicity||13.1||12.7||-0.4|
(not seasonally adjusted)
The BLS added more specific data about the reason for job losses in November. "Among the unemployed, the number of job losers and persons who completed temporary jobs fell by 463,000 in November. The number of long-term unemployed (those jobless for 27 weeks and over) rose by 293,000 to 5.9 million. The percentage of unemployed persons jobless for 27 weeks or more increased by 2.7 percentage points to 38.3 percent." The trend of longer periods of unemployment continued as jobs continued to be difficult to find.
"The number of people working part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in November at 9.2 million. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job."
"About 2.3 million persons were marginally attached to the labor force in November, an increase of 376,000 from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, 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 861,000 discouraged workers in November, up from 608,000 a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.5 million persons marginally attached to the labor force had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities."
If the numbers of marginally attached and discouraged workers increased, the unemployment rate may be understated. And, 52,000 of the increase in jobs were temporary jobs. Temporary hiring may be an indicator of future permanent hiring. If and when the "temporary" jobs end those workers may again be counted among the unemployed if new permanent jobs have not been created.
Another possible reason for job growth is that companies have reduced employment so much that they must hire new workers to see any increase in output. In recent months, U.S. firms have improved productivity significantly with fewer workers maintaining or improving output. A December 5, 2009, New York Times article quoted IHS Global Insight economist Nigel Gault, saying, "Many companies have reached the point that they can’t extract more work from their existing employees. “That means they have to add hours for existing workers or add people. Just how many depends on how quickly the economy grows.”
The 2008-2009 Recession - Job Losses
Figure 2, below, shows the monthly employment losses in the U.S. since January 2008, the first month of jobs losses in this recession. Notice the almost continuous increases in job losses from January 2008 to the peak in January 2009 (loss of 741,000 jobs) and the almost continuous declines in job losses from January 2009 to November. Was January 2008 the "bottom"?
[Note to teachers: Ask your students,"What data will convince you that the recession is over?"]
|Figure 2: U.S. Employment
January 2008 to November 2009
|Total of U.S. Job Losses since Jan. 2008||7,156,000|
|Total U.S. Unemployed in November 2009||15,400,000|
|U.S. Unemployment, November 2009||10%|
|*Preliminary estimates subject to revision.|
Remember, according to the National Bureau of Economic Research's Business Cycle Dating Committee, a recession is...
"a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.
Because a recession is a broad contraction of the economy, not confined to one sector, the committee emphasizes economy-wide measures of economic activity. 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."
Establishment Survey Data
[NOTE: The Establishment Survey data is drawn from a sample of 150,000 businesses and government agencies, representing approximately 390,000 individual work sites nationwide. It is used to measure the level of employment (number of jobs) and is broken down by industry groups.]
Summary: "Total nonfarm payroll employment was essentially unchanged in November (-11,000). Job losses in the construction, manufacturing, and information industries were offset by job gains in temporary help services and health care. Since the recession began, payroll employment has decreased by 7.2 million."
"Construction employment declined by 27,000 over the month. Job losses had averaged 117,000 per month during the 6 months ending in April and 63,000 per month from May through October. In November, construction job losses were concentrated among nonresidential specialty trade contractors (-29,000)."
"Manufacturing employment fell by 41,000 in November. The average monthly decline for the past 5 months (-46,000) was much lower than the average monthly job loss for the first half of this year (-171,000). About 2.1 million manufacturing jobs have been lost since December 2007; the majority of this decline has occurred in durable goods manufacturing (-1.6 million)."
"Employment in the information industry fell by 17,000 in November. About half of the job loss occurred in its telecommunications component (-9,000)."
"There was little change in wholesale and retail trade employment in November. Within retail trade, department stores added 8,000 jobs over the month."
"The number of jobs in transportation and warehousing, financial activities, and leisure and hospitality showed little change over the month."
"Employment in professional and business services rose by 86,000 in November. Temporary help services accounted for the majority of the increase, adding 52,000 jobs. Since July, temporary help services employment has risen by 117,000."
"Health care employment continued to rise in November (21,000), with notable gains in home health care services (7,000) and hospitals (7,000). The health care industry has added 613,000 jobs since the recession began in December 2007."
[Note to teachers: Ask your students how they think structural changes in the make-up of the labor market, such as far fewer manufacturing jobs and more service jobs, changes our economy? How does the continuous improvement of technology impact jobs?]
Data on Average Workweek and Earnings
"In November, the average workweek for production and nonsupervisory workers on private nonfarm payrolls rose by 0.2 hour to 33.2 hours. The manufacturing workweek increased by 0.3 hour to 40.4 hours. Factory overtime rose by 0.1 hour to 3.4 hours. Since May, the manufacturing workweek has increased by 1.0 hour." Those who are working are working slightly longer each week. Again, increasing work hours may be a less risky decision by employers than hiring more workers.
"In November, average hourly earnings of production and nonsupervisory workers on private nonfarm payrolls edged up by 1 cent, or 0.1 percent, to $18.74. Over the past 12 months, average hourly earnings have risen by 2.2 percent, while average weekly earnings have risen by 1.6 percent." Those who are working are earning slightly more - due, somewhat, to the increase in the average workweek.
The Employment Situation for December is scheduled to be released on Friday, January 8, 2010, at 8:30 a.m. (EST).
Other Macroeconomic Data - Business Cycles, Employment, GDP and CPI
The economy moves in continuous periods of growth and decline called business cycles. The cycle primarily represents growth and decline of gross domestic product (GDP) and employment, and may also represent other measurements of the general health of the economy. When the economy is in a state of declining GDP and employment it may be, as we are now, in a recession. Let's take a look at how the three macroeconomic measurements in the "Focus on Economic Data" lesson series compare over the last year and the current recession. Figure 1 illustrates a "typical" business cycle.
Summary of Recent U.S. Economic Data
Employment and Unemployment
In November 2009, the number of unemployed persons decreased by 325,000 to 15.375 million, and the unemployment rate fell to 10.0 percent from 10.2 percent. Over the past 24 months (November 2007-November 2009), the number of unemployed persons in the U.S. has grown by 8.2 million, and the unemployment rate has more than doubled, rising by 5.3 percentage points.
Real Gross Domestic Product (Real GDP)
The output of goods and services produced by labor and property located in the United States increased at an annual rate of 2.8 percent in the third quarter of 2009, after increasing in the second quarter by just 0.7 percent In all of 2008, real GDP increased by 0.4 percent. Real GDP had decreased at annual rates of -5.4 percent in Q4 2008 and -6.4 percent in Q1 2009 – the heart of the recessionary period.
Consumer Price Index
The CPI for All Urban Consumers (CPI-U) increased 0.3 percent in October 2009, after seasonal adjustment. The October CPI-U level of 216.177 (base 1982-84=100) was just 0.1 percent higher than in November 2008.
Monetary Policy – Federal Funds Rate
The Federal Reserve FOMC has kept its target for the federal funds rate at 0 - 1/4 percent since December 16, 2008, and has stated after the past several meetings that the rate will be kept low in the near future.
Figure 4 provides a summary of four key macroeconomic measurements over the past ten years.
[Note to teachers: Students can look at the ten years of economic data to identify patterns of relationships. For instance, what is the relationship between GDP growth and employment? Is there a relationship between inflation and unemployment?]
|Figure 4: Selected Macroeconomic Data
|* Through Q3 2009|
Unemployment and Real GDP Growth
Looking at Figure 3, you will notice a general relationship between real GDP growth and the unemployment rate. From 1999 to 2008, as real GDP growth declined, generally, the unemployment rate increased. Real GDP growth is a coincident indicator and unemployment is a lagging indicator, so when looking at quarterly changes, you will notice that the decreases in real GDP growth were followed by increases in unemployment. The real GDP data for the last two quarters of 2008 was negative, followed by significant increases in unemployment - month to month. The comparison is complicated by the fact that GDP data is only announced by quarter.
To better see this relationship, look at Figure 4 and Figure 5. Figure 4 shows the rates of growth of real GDP in recent years. Compare it to Figure 5, illustrating monthly unemployment rates over several years. Both GDP growth and employment data are considered in the determination of business cycles and recessions. Both the GDP and unemployment data show cycles of growth and decline. Of course, the two rates have an inverse relationship. Generally, as the economy slows (smaller or negative GDP growth), unemployment increases.
Real GDP Growth and Monetary Policy
Take a look at the data for real GDP growth and the federal funds rate targets for 1999 to the present (Figure 6, below). As the most commonly used monetary policy tool, open market operations, the fed funds rate target is used to manipulate the money supply to either stimulate or contract the economy. In the early 2000s, the fed funds target was typically increased as the economy grew, and inflationary pressures increased, the fed funds rate was increased. In times of economic contraction, the rate was lowered to stimulate employment and output.
In the most recent Federal Open Market Committee meetings, the rate has been kept at a historically low level of 0-1/4 percent. Further rate decreases are not a viable option at this time, so the Fed has taken other actions to increase liquidity and support the banking system. Monetary policies tend to follow the same flows as the business cycles - using contractionary policies (increasing interest rates) in times of rapid growth and inflationary pressure, and stimulatory policies (decreasing increasing rates) during slowdowns. Figure 4 shows the level of the federal funds rate target in recent years. Compare it to the changes in real GDP and unemployment to see their general relationship.
What About Prices?
In it's November 4, 2009 press release on monetary policy, the Federal Open Market Committee (FOMC) made this statement about the prospects for inflation. "With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time."
The Federal Reserve is not now concerned with inflation, despite the many efforts that have been made to stimulate growth - stimulus often comes with some inflationary pressures. Recently, some economists and business leaders have warned against the negative effects of deflation - a persistent decrease in the general price level. The BLS reports on the consumer price index in the past two months have indicated that we are not experiencing deflation but that the price level is stagnant. Energy prices are the "wild card." When energy prices increase, producer input costs increase and investment may suffer. If energy prices remain somewhat stable, investment decisions may be easier.
Business investment is critical for job creation. Although interest rates are low and inflation is not on the near-term horizon, future expectations of consumer demand and tough credit conditions have kept private investment slow. Deflation also inhibits investment. Businesses may be less likely to invest if they perceive that their product prices are decreasing.
A Last Note About Comparing Economic Data
Although this analysis has made comment about the relationships of various economic indicators, there are obviously many variables that impact output, employment, etc., independent of their "general" relationships. For instance, we have had periods of substantial growth that have not been accompanied by similar increases in employment - when the increase in output has been more the result of improvements in productivity.
It is worthwhile to compare and contrast various economic data to identify current trends in the economy and, hopefully, to be better able to predict future conditions.
The Bureau of Labor Statistics reported that the U.S. unemployment rate decreased to 10.0 percent in November, as nonfarm payroll employment decreased by just 11,000 jobs. Complicating the meaning of these numbers was that the labor force shrunk by 98,000 workers, the number of persons "not in the labor force" increased by 291,000, the number of job losses in September and October was revised downward by 159,000, and 52,000 of the new jobs were temporary
The jobs data announced December 4 seems to indicate some good news, but the real meaning is not clear. If the economy is turning around, this trend will have to continue for many months. The private sector will have to begin hiring in significant numbers.
Has the "stimulus" worked to create jobs? It may be too early to really tell. Typically, employment is a lagging indicator and hiring follows other signs of growth. Employers will not commit to hiring unless they foresee consumer demand.
Watch for the Bureau of Economic Analysis final announcement of Q3 real GDP growth to be released on December 22, 2009, and the BLS December employment data to be released on January 8, 2010.
1. How are changes in real GDP and the unemployment rate related?
[Real GDP is a measurement of output of goods and services. Output is a determinant of the demand for labor and thus, the number of jobs. As output has decreased and the demand for labor has decreased, the unemployment rate has increased.]
2. What change in what macroeconomic indicator will convince you that the recession is over? Why? [Answers will vary. Look for references to GDP, Employment or Unemployment Rate.]