Explore the connection between the economic indicators and real-world issues. These lessons typically can be done in one class period.

KEY CONCEPTS

Fiscal Policy, Full Employment, Inflation, Labor Force, Monetary Policy, Unemployment, Unemployment Rate

Current Key Economic Indicators

as of May 5, 2013

Inflation

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.

Employment and Unemployment

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 GDP

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.

Federal Reserve

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...


The unemployment rate fell arrow
to 4.6%.

Employment increases. An increase ofarrow
75,000 jobs.

Goals of the Unemployment Case Study

The purpose of this case study is to report the unemployment and employment data, to provide interpretations of the significance of the changes in conditions, and to discuss a number of related economic concepts. The case ends with exercises for students and activities that teachers can use in classrooms.

The case offers an opportunity to enhance our understanding of the relevance of the announcements and the causes and consequences of one of the more important challenges economic policymakers face.

Teachers' Notes

Material in italics in this case does not appear in the student version. Each case describes the most current data and trends and expands expectations of student understanding. In this case, policy options are discussed.

You may wish to use the following larger versions of the graphs and tables from this lesson for overhead projection or handouts in class:

Announcement

The unemployment rate for the month of May was 4.6 percent. Total employment rose by 75,000 in May.

The original press release is available at: .

Definition Of The Unemployment Rate

The unemployment rate is the percentage of the U.S. labor force that is unemployed. It is calculated by dividing the number of unemployed individuals by the sum of the number of people unemployed and the number of people employed. The number of people unemployed and the number of people employed is defined as the number of individuals in the labor force. See the current calculation in Table 1.

An individual is counted as unemployed if the individual is over the age of 16 and is actively looking for a job, but cannot find one. Students, those individuals who choose to not work, and retirees are not in the labor force, and therefore not counted in the unemployment rate.

        Description

Table 1: Calculation of the Unemployment Rate
Total civilian population   228,428,000   (excluding those under 16, members of the military, and persons in institutions)
- Not in Labor force  

77,437,000

  (retired, students, individuals choosing not to work)
= Labor force  

150,991,000

  (total population minus those not in labor force)
- Employed   143,976,000   (individuals with jobs)
= Unemployed   7,015,000   (individuals without a job and actively searching)

 

Unemployment Rate = 7,015,000
143,976,000 + 7,015,000
= 4.6%

Note to teachers. The number of individuals employed actually differs here from the number of employed discussed later in the case. This is because the unemployment statistics and the number of employed used to calculate the unemployment rate come from different surveys than those used to track changes in the number of employed.

 

  1. [Approximately 5 percent (actually 4.6 percent).
  2. Compared to last year, current unemployment has slightly decreased. During 2005, the unemployment rate was 4.9 percent or higher for the entire year - mostly above 5.0 percent.
  3. The number of new jobs each month must average between 125,000 to 150,000 each month if all of the new entrants are to find jobs.]

Data Trends

Unemployment rates have been steady this year. The previous three months have experienced unemployment rates of 4.7 or 4.8 percent. Those rates are below those of 2005 when the average rate was 5.0 percent and significantly below the average rate of 5.5 percent in 2004.

The trends from the beginning of the 1990s to the 2001 recession were a decrease in unemployment and an increase in employment.

Figure 1 shows the rises in unemployment associated with the recession in 1990 to 1991 and the recession of 2001 with an almost decade long fall in unemployment in between. Unemployment rates continued to increase after the 2001 recession, as the economy only slowly recovered.

Graph 1

At its low in December 2000, the unemployment rate equaled 3.9 percent. From March 2001 to the summer 2003, the trend was generally one of increasing unemployment rates and decreasing employment. Unemployment rates since reaching a high of 6.3 percent in June of 2003 slowly and relatively steadily decreased.

Graph 2

Unemployment rates over a longer period are shown in figure 3. As one can see, unemployment rates are currently quite low. They did go below 4 percent at the end of the 1990s, but we would have to back to the 1960s before we find unemployment rates as low as they currently are. Figure 3 also shows the highs reached in recessions in the 1970s and early 1980s recessions of over 8 and 10 percent.

Graph 3

Relevance of Unemployment Announcements

The unemployment announcements receive headline treatment almost every month. Changes are significant indicators of national economic conditions and have relevance to every local community as unemployment has significant costs to the individuals who are unemployed and to the entire community and the U.S. economy.

Changes in levels of employment are also included in the announcements and often receive less attention. However, the employment data are equally, perhaps even more, important indicators of the direction of the U.S. economy.

Announcements of increases in employment have been receiving increased attention. From the recession in 2001 through the year 2004, the economy had not generated sufficient numbers of new jobs to provide new labor market entrants with jobs.

Graph 4

Distribution of Unemployment

Unemployment varies significantly among groups of individuals and parts of the country. Table two shows the unemployment rates for a number of groups of individuals, with unemployment rates ranging from 4.2 for adult males to 14 percent for teenagers.

Table 2: Unemployment Statistics
by Gender, Race and Age
Adult Men 4.2%
Adult Women 4.1%
Whites 4.1%
Blacks 8.9%
Hispanics 5.0%
Teenagers 14.0%

 

 

Case Study Discussion Questions

Have students complete the two interactive exercises below.

[It can happen and did. If the labor force increases more slowly than normal because relatively few entrants come into the labor force for the month and a larger percentage of the new entrants are employed than normal, the unemployment rate will fall.]

 

[Possible answers:

  1. What are the key parts of the unemployment announcement? [The unemployment rate fell to 4.6%. Employment increased by less than a sufficient amount to provide new entrants with jobs.]
  2. What should fiscal and monetary policy be? [Fiscal and monetary policies are difficult to determine in this case. (See the FOMC latest case study.) Employment growth is slowing and thus that calls for stimulative policies in the future. However, increases in inflation may also be a problem. (See the latest inflation case study.) In addition, the unemployment rate is still falling.

    If unemployment rates were to begin to rise and employment growth to slow down more, than we would see a clear signal for stimulative monetary policy.

    We should also keep in mind that both policies have significant lags between the time we make a decision to do something and when the policy actually begins to have an effect. Thus, it is not really current conditions that are important, but what current conditions say about what future conditions are likely to be. Thus, we have to forecast future changes.]

Classroom Discussion Activity

Go to the BLS website and check the Local Area Unemployment Statistics for your city and state ( ).

  1. Is unemployment in your area higher, lower, or roughly the same as the national average?
  2. What factors contribute to your area’s unemployment rate?

    Which industries have expanded?
    Which industries have contracted?

    A good idea is to ask students to talk to your local or state employment office and report on local and state trends. The local or state employment office should be about to explain why your local statistics differ from the national data.

  1. Will the recent changes affect students hunting for part-time jobs?