INTRODUCTION

Each month the Bureau of Labor Statistics (BLS) Current Employment Statistics (CES) program surveys about 150,000 businesses and government agencies, representing approximately 390,000 individual worksites, in order to provide detailed industry data on employment, hours, and earnings of workers on nonfarm payrolls. The BLS then announces the monthly 'Employment Situation,' reporting the current employment and unemployment data estimates.

Date of Announcement: May 2, 2008: U.S. Bureau of Labor Statistics announcement: 'The Employment Situation, March 2008'

'Nonfarm payroll employment was little changed in April (-20,000), following job losses that totaled 240,000 in the first 3 months of the year, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The unemployment rate, at 5.0 percent, also was little changed in April. Employment continued to decline in construction, manufacturing, and retail trade, while jobs were added in health care and in professional and technical services.

Unemployment (Household Survey Data)

The number of unemployed persons (7.6 million) and the unemployment rate (5.0 percent) were little changed in April. A year earlier, the number of unemployed persons was 6.8 million, and the jobless rate was 4.5 percent. Over the month, the unemployment rates for most major worker groups--adult men (4.6 percent), teenagers (15.4 percent), whites (4.4 percent), blacks (8.6 percent), and Hispanics (6.9 percent)--showed little or no change. The jobless rate for adult women decreased to 4.3 percent in April, nearly off-setting an increase in the prior month. The unemployment rate for Asians was 3.2 percent (not seasonally adjusted) in April.

Total Employment and the Labor Force (Household Survey Data)

Both total employment, at 146.3 million, and the employment-population ratio, at 62.7 percent, were little changed in April. Over the month, the labor force participation rate held at 66.0 percent; it was the same rate a year earlier.

In April, the number of persons working part time for economic reasons increased by 306,000 to 5.2 million. This level was 849,000 higher than in April 2007. These individuals indicated that they were working part time because their hours had been cut back or because they were unable to find a full-time job.

Persons Not in the Labor Force (Household Survey Data)

About 1.4 million persons (not seasonally adjusted) were marginally attached to the labor force in April. 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 412,000 discouraged workers in April, about the same as a year earlier. Discouraged workers were not currently looking for work specifically because they believed no jobs were available for them. The other 1.0 million persons classified as marginally attached to the labor force in April cited reasons such as school attendance or family responsibilities.'

TASK

  • Review the summary of the unemployment and employment data reported by the U.S. Bureau of Labor Statistics for March 2008.
  • Review the information about the determination of the current data, its relevance and other information about trends and types of unemployment.
  • Consider the impact of the current data on various groups and sectors of the economy.

PROCESS

Date of Announcement: May 2, 2008: U.S. Bureau of Labor Statistics announcement: 'The Employment Situation, April 2008'

'Nonfarm payroll employment was little changed in April (-20,000), following job losses that totaled 240,000 in the first 3 months of the year, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The unemployment rate, at 5.0 percent, also was little changed in April. Employment continued to decline in construction, manufacturing, and retail trade, while jobs were added in health care and in professional and technical services.

Unemployment (Household Survey Data)

The number of unemployed persons (7.6 million) and the unemployment rate (5.0 percent) were little changed in April. A year earlier, the number of unemployed persons was 6.8 million, and the jobless rate was 4.5 percent. Over the month, the unemployment rates for most major worker groups--adult men (4.6 percent), teenagers (15.4 percent), whites (4.4 percent), blacks (8.6 percent), and Hispanics (6.9 percent)--showed little or no change. The jobless rate for adult women decreased to 4.3 percent in April, nearly off-setting an increase in the prior month. The unemployment rate for Asians was 3.2 percent (not seasonally adjusted) in April.

Total Employment and the Labor Force (Household Survey Data)

Both total employment, at 146.3 million, and the employment-population ratio, at 62.7 percent, were little changed in April. Over the month, the labor force participation rate held at 66.0 percent; it was the same rate a year earlier.

In April, the number of persons working part time for economic reasons increased by 306,000 to 5.2 million. This level was 849,000 higher than in April 2007. These individuals indicated that they were working part time because their hours had been cut back or because they were unable to find a full-time job.

Persons Not in the Labor Force (Household Survey Data)

About 1.4 million persons (not seasonally adjusted) were marginally attached to the labor force in April. 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 412,000 discouraged workers in April, about the same as a year earlier. Discouraged workers were not currently looking for work specifically because they believed no jobs were available for them. The other 1.0 million persons classified as marginally attached to the labor force in April cited reasons such as school attendance or family responsibilities.'

U.S. Employment Data, Q4 2007 to Q1 2008

Figure 1 compares the unemployment rates of selected demographic groups from the May 2 BLS announcement. Note the difference in unemployment rates for the various groups. Note that the unemployment rate for most groups decreased slightly with the largest decrease (0.4 percent) for teenagers. For most groups, unemployment rate increases in March were reversed in April.

Figure 1: Unemployment Rate by Demographic Group, April 2008  

 

Q4 2007

Q1 2008

Feb. 2008

Mar. 2008

Apr. 2008

Change Mar.- Apr.

All Workers

4.8

4.9

4.8

5.1

5.0

- 0.1

Adult Men

4.3

4.4

4.3

4.6

4.6

0  

Adult Women

4.2

4.3

4.2

4.6

4.3

- 0.3  

Teenagers

16.4

16.8

16.6

15.8

15.4

- 0.4

Whites

4.3

4.4

4.3

4.5

4.4

- 0.1

Black/African Americans

8.6

8.8

8.3

9.0

8.6

- o.4  

Hispanic or Latinos

5.9

6.5

6.2

6.9

6.9

0


Figure 2 summarizes the status of the labor force in April 2008, including the total size, employment, unemployment and those not participating in the labor force. Note that the decrease in the number of unemployed was slightly more than the increase in the size of the labor force.

Figure 2: Labor Force Status April 2008 (thousands)

 

Q4

2007

Q1

2008

Feb.

2008

Mar.

2008

Apr.

2008

Change

Mar.- Apr.

Civilian Labor Force

153,667

153,661

153,374

153,784

153,957

173

Employment

146,291

146,070

146,993

145,969

146,331

362

Unemployment

7,375

7,591

7,381

7,815

7,626

-189

Not in Labor Force

79,270

79,146

79,436

79,211

79,241

30


The Health of the U.S. Economy

The April unemployment rate decreased to 5.0 percent, with an increase of 362,000 employed and a decrease of 189,000 unemployed. The BLS commented that employment continued to decline in construction, manufacturing, and retail trade, while jobs were added in health care and in professional and technical services.

The economy lost 20,000 jobs in April, the fourth consecutive month of decline, but the number of lost jobs was significantly smaller than most predictions. The slight decrease in the unemployment rate and smaller loss of jobs may indicate the the downturn of the business cycle is not as severe or will last as long as most thought.

A May 3, 2008, New York Times article cited the highlights of the May report. '46,000 manufacturing workers were laid off last month, and 326,000 such positions have been lost over the last year, the Labor Department reported. Construction remained the focus of contraction, losing 61,000 jobs. Retailers eliminated 26,800 jobs.

Health care continued to be a rare bright spot, adding nearly 37,000 jobs. Restaurants and bars added 18,000 jobs. Professional and business services, which includes accountants, architects and management consultants, added 39,000 jobs.'

Business Cycles

The term 'business cycle' refers to fluctuations of growth and decline in the level of economic activity in an economy relative to its long term growth trend. The cycle is made up of periods of growth of output (recovery and peak) and periods of relative decline (contraction or recession). These fluctuations in economic growth and decline do not follow any predictable time pattern in terms of enlight or severity.

'The National Bureau of Economic Research's Business Cycle Dating Committee maintains a chronology of the U.S. business cycle. The chronology identifies the dates of peaks and troughs that frame economic recession or expansion. The period from a peak to a trough is a recession and the period from a trough to a peak is an expansion. According to the chronology, the most recent peak occurred in March 2001, ending a record-long expansion that began in 1991. The most recent trough occurred in November 2001, inaugurating an expansion.'

The NBER defines a recession as 'a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.'

The NBER reported on November 26, 2001, that 'the peak of economic activity had occurred in March of that year. The March 2001 peak marked the end of the expansion that began in March 1991, an expansion that lasted exactly 10 years and was the longest in the NBER's chronology. On July 16, 2003, the committee determined that a trough in economic activity occurred in November 2001. The trough marks the end of the recession that began in March 2001. The 2001 recession thus lasted eight months, which is somewhat less than the average duration of recessions since World War II. The postwar average, excluding the 2001 recession, is eleven months.'

The NBER procedure for dating business cycles 'follows standard procedures to assure continuity in the chronology. Because a recession influences the economy broadly and is not confined to one sector, the committee emphasizes economy-wide measures of economic activity. The committee views real GDP as the single best measure of aggregate economic activity. In determining whether a recession has occurred and in identifying the approximate dates of the peak and the trough, the committee therefore places considerable weight on the estimates of real GDP issued by the Bureau of Economic Analysis of the U.S. Department of Commerce. The traditional role of the committee is to maintain a monthly chronology, however, and the BEA's real GDP estimates are only available quarterly. For this reason, the committee refers to a variety of monthly indicators to determine the months of peaks and troughs.'

The key factors in the NBER analysis are 'two monthly measures of activity across the entire economy: (1) personal income less transfer payments, in real terms and (2) employment. In addition, the committee refers to two indicators with coverage primarily of manufacturing and goods: (3) industrial production and (4) the volume of sales of the manufacturing and wholesale-retail sectors adjusted for price changes. The committee also looks at monthly estimates of real GDP such as those prepared by Macroeconomic Advisers. Although these indicators are the most important measures considered by the NBER in developing its business cycle chronology, there is no fixed rule about which other measures contribute information to the process.'

Source: The NBER's Recession Dating Procedure: www.nber.org/cycles/recessions.html

Employment Situation by Selected Industry Groups (Source: BLS Establishment Survey Data)

According to the May 2 BLS Employment Situation Summary:

'Total nonfarm payroll employment was little changed in April (-20,000). Job losses continued in construction, manufacturing, and retail trade. Employment grew in health care and in professional and technical services.

In April, employment in construction declined by 61,000, with losses continuing throughout most of the sector. Since its peak in September 2006, construction employment has fallen by 457,000.

Manufacturing employment fell by 46,000 over the month; nearly all the decline occurred in durable goods manufacturing. In April, large job losses occurred in motor vehicles and parts (-17,000) and in fabricated metal products (-11,000). Declines also occurred in furniture and related products (-4,000) and in semiconductors and electronic components (-3,000). Over the past 12 months, manufacturing employment has declined by 326,000.

Employment in retail trade continued to trend down, with a decrease of 27,000 in April. Since its peak in March 2007, the industry has shed 137,000 jobs. Over the month, job losses continued in building material and garden supply stores (-12,000) and in department stores (-8,000).

Employment in health care continued to increase in April with a gain of 37,000. This industry has added 365,000 jobs over the past 12 months. In April, there were gains of 22,000 jobs in ambulatory health care services and 9,000 jobs in hospitals.

Professional and technical services employment rose by 27,000 in April after showing little change during the first quarter of 2008. Computer systems design added 10,000 jobs over the month and employment in accounting and bookkeeping services edged up by 9,000. Employment in temporary help services continued to trend
down.

Employment continued to trend upward in food services in April (18,000), although job gains in this industry have slowed over the past 6 months. Since October 2007, food services employment has grown by an average of 13,000 per month; this compares to an average increase of 28,000 jobs per month for the preceding 12-month period.'

U.S. Employment Data

For the purpose of determining employment and unemployment data, the BLS definition of 'employment' is:

'Employment is the total number of persons on establishment payrolls employed full or part time who received pay for any part of the pay period that includes the 12th day of the month. Temporary and intermittent employees are included, as are any workers who are on paid sick leave, on paid holiday, or who work during only part of the specified pay period. A striking worker who only works a small portion of the survey period, and is paid, would be included as employed under the CES definitions. Persons on the payroll of more than one establishment are counted in each establishment.'

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 labor force. The labor force is the sum of the number of people who are unemployed and the number of people who are employed. See the current labor force and unemployment calculations in Figure 3.

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, individuals who choose to not work, retirees and those in institutions are not in the labor force, and therefore not counted in the unemployment rate.

Table 1: Calculation of the Unemployment Rate (Description)

Table 1: Calculation of the Unemployment Rate Description

Total civilian population   233,198,000   (excluding those under 16, members of the military, and persons in institutions)
- Not in Labor force**  

79,241,000

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

153,957,000

  (total population minus those not in labor force)
- Employed   145,331,000   (individuals with jobs)
= Unemployed*   7,767,000   (individuals without a job and actively searching)

 

Unemployment Rate =

7,676,000 divided by 153,957,000

= 5.0%


[NOTES:

* Those under 16, members of the military, and persons in institutions, retired, students, individuals choosing not to work.
* * Individuals without a job and actively searching for work.]

Recent U.S. Employment and Unemployment Data Trends

The trend from the beginning of the 1990s to the 2001 recession was a decrease in unemployment and an increase in employment. Figure 4 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.

figure3

Unemployment rates over a longer period are shown in Figure 5. As you 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 5 also shows the high levels reached in recessions in the 1970s and early 1980s recessions of over 8 and 10 percent.

figure4

Figure 6 shows that growth in employment slowed in the last part of 2000 and stopped in March of 2001. Employment decreased in all but six of the months from the beginning of the recession in March of 2001 to September of 2003. Finally in September of 2003, employment began to grow and continued to grow until February, 2008.

figure5

Figure 7 shows the monthly change in employment. If the same percentage of adults are to be employed, jobs and employment need to grow by between 125,000 and 150,000 jobs per month. Note the decreases of 63,000 jobs in February, 81,000 jobs in March and 200,000 jobs in April 2008.

figure6

The Costs of Unemployment

There are significant personal costs to unemployment and these are the easiest to understand. Unemployed workers often do not have the income to support themselves or their families. The stress of being unemployed is reflected not only through the financial challenges of paying regular ongoing bills, but also through increases in alcohol and drug abuse, marital problems, and criminal activity among those who are unemployed.

State and federal governments reduce the personal financial cost of being unemployed through unemployment compensation provided to many unemployed workers. Because most workers pay the taxes that fund the unemployment compensation, the cost of being unemployed is spread among taxpayers, instead of having the entire burden fall on the unemployed workers alone.

Increases in unemployment also mean that the economy is wasting an important scarce resource – labor. Real GDP is less than it otherwise could be and that additional output is lost forever. If more individuals had been employed, production of goods and services would have been higher. Average standard of living is lower as a result of an increase in unemployment. Standard of living is generally defined by per capita GDP or per capita income. If incomes or output rises faster than the population, individual workers will have more income or can purchase more goods and services, on average.

Types of Unemployment

There are three types of unemployment, each of which describes the particular circumstances of the individual and their employment situation.

Frictional unemployment is temporary unemployment arising from the normal job search process. Frictional unemployment helps the economy function more efficiently as it simply refers to those people who are seeking better or more convenient jobs and those who are graduating and just entering the job market. Some frictional unemployment will always exist in any economy.

Structural unemployment is the result of changes in the economy caused by technological progress and shifts in the demand for goods and services. Structural changes eliminate some jobs in certain sectors of the economy and create new jobs in faster growing areas. Persons who are structurally unemployed do not have marketable job skills and may face prolonged periods of unemployment, as they must often be retrained or relocate in order to find employment.

Cyclical unemployment is unemployment caused by a drop in economic activity. This type of unemployment can hit many different industries and is caused by a general downturn in the business cycle. Lower demand for goods and services reduces the demand for workers.

At the levels of unemployment that economists consider to be the lowest possible sustainable levels (discussed below), the only unemployment that exists is due to friction in labor markets and structural changes in the economy.

Full Employment

Economists define the approximate unemployment rate that is 'full employment'. If unemployment falls to a very low rate, there will be upward pressure on prices. If unemployment rises to a very high rate, there will downward pressure on prices or prices will remain steady. In the middle is a level, or more likely a range, where there is not pressure on wages to rise or fall. That is the full employment rate of unemployment.

Economists do not agree or know for certain what that rate is and it does change over time. A consensus estimate is that the full employment rate of unemployment is currently between 4.5 and 5.0 percent of the labor force being unemployed.

Seasonally Adjusted Household Survey Data

Short-run trends in labor force are influenced by seasonal and periodic fluctuations associated with recurring events such as weather, holidays, and the opening and closing of schools. Seasonal adjustment eliminates the influence of these fluctuations and makes it easier for users to observe fundamental changes in the level of the series, particularly changes associated with general economic
expansions and contractions.

At the end of each calendar year, BLS updates the seasonal adjustment factors for the labor force data derived from the Current Population Survey (CPS), or household survey. This past year, seasonally adjusted data for January 2007-November 2007 were subject to revision. The rates were unchanged in 7 of the 11 months in 2007 and changed (increased) by one-tenth of a percentage point in the months of June, July, August and October.

For a more full explanation of the seasonal adjustment process, see the BLS article at www.bls.gov/cps/cpsrs2008.pdf .

Wage Rates

More critical employment measurements for many people are the number of hours worked and wage rates. If hours worked and/or wage rates increase, incomes increase. The May 2 BLS report cited the data in Figure 8.

 

Table 2 : Wage Rates and Hours Worked, April, 2008

The average number of hours worked in all private sector industries:

33.7 hours(down 0.1)

The average number or hours worked in the manufacturing sector:

40.9 hours (down 0.3)

The average number of hours of overtime worked:

3.9 hours (down 0.1)

The average hourly earnings in the private sector:

$17.88 (down $0.01)

The average weekly earnings in the private sector:

$602.56 (down $1.45)


The May 2 New York Times article commented on the wage data.

Despite the comparatively modest number of jobs lost last month, economists found clear signs of widening distress for millions of American workers. 'Companies are cutting working hours, even as many avoid layoffs. The number of people working part time because of slack business or because they could not find full-time work swelled to 5.2 million in April from 4.9 million in March. In percentage terms, employees working part time involuntarily were the most since 1995.

The average weekly pay for rank-and-file workers — about 80 percent of the American work force — has risen by a mere 3 percent over the last year, to $602.56. But that increase has failed to keep pace with the rise in the cost of living, driven primarily by the soaring costs of food and energy. In inflation-adjusted terms, these weekly wages have slipped by 1.3 percent since late 2006.'

Given the increase in the rate of inflation in recent months, fewer hours worked and lower wage rates for some result in greater personal economic distress.

CONCLUSION

  • Review the employment and unemployment data for April, 2008.
  • The U.S. Unemployment Rate was 5.0% in April, 2008, a decrease of 0.1% from March 2008.
  • Non-farm payroll employment decreased by 20,000 in April.
  • The number of unemployed persons (seasonally adjusted) decreased by 189,000 to a total of 7,626,000.
  • The number of employed persons (seasonally adjusted) increased by 362,000 to a total of 146,331,000.
  • The total US Civilian Labor Force (seasonally adjusted) increased by 173,000 to a total of 153,957.

Some suggest that the economy has 'hit bottom' and is emerging from the downturn and is possibly the end of a recession. Others suggest that the use of monetary and fiscal policy measures to stimulate the economy have simply slowed the recessional trend. Look for the June BLS employment report to be released on Friday, June 6,
at 8:30 A.M. (EDT) for more data.

ASSESSMENT ACTIVITY

Click the start button below to complete interactive exercise to assess your knowledge of the Unemployment Lesson.


Next, answer the following question using the interactive notepad.

 

  1. How does the loss of one job affect other jobs?

EXTENSION ACTIVITY

Go to the BLS report 'Employed and unemployed persons by occupation, not seasonally adjusted. '

Look at the data for various sectors/occupations. Do you see any trends over the last year? What occupations have grown more than others?