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This lesson examines the April 6, 2012, U.S. Department of Labor, Bureau of Labor Statistics, announcement of U.S. employment data and the unemployment rate for the month of March, 2012. 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.

KEY CONCEPTS

Business Cycles, Cyclical Unemployment, Discouraged Workers, Employment Rate, Frictional Unemployment, Labor Force, Macroeconomic Indicators, Structural Unemployment, Unemployment, Unemployment Rate

STUDENTS WILL

  • 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 Indicators

as of November 10, 2014

Inflation

The Consumer Price Index for All Urban Consumers increased 0.1 percent in October on a seasonally adjusted basis. The core inflation rate increased the same amount. For the previous 12 months, the index increased 1.7%, the same rate as reported in the September report.

Employment and Unemployment

According to the October report of the Bureau of Labor Statistics, the unemployment rate fell from 5.9% to 5.8%, and the number of individuals unemployed also decreased. Total nonfarm employment rose by 214,000 in October. Employment gains were concentrated in retail trade, food services and health care.

Real GDP

The advance estimate for real GDP growth in the third quarter of 2014 was 3.5%, a decrease from the revised second quarter growth of 4.6%. Inventory investment reduced third quarter growth, while it added to second quarter growth. In addition, consumer spending increased at a lower rate in the third quarter, compared to the second. Finally, business investment increased in the third quarter, but at a lower rate than in the second quarter.

Federal Reserve

The FOMC believes that the labor market has shown considerable improvement and the risks of inflation rising above its 2% target are low. Therefore, the Federal Reserve announced plans to end its purchase of financial assets. In addition, the federal funds rate will remain at its current low level. However, the FOMC has signaled its willingness to increase the federal funds rate if inflation shows signs of rising above the 2% target.

INTRODUCTION

Each month, the U.S. 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 focuses on the April 6, 2012, BLS announcement, "Employment Situation: March, 2012."  The lesson will also look at the relationship of employment and unemployment data to other macroeconomic data, such as GDP and CPI, and business cycles.  s........,,mmmm

[NOTE: Employment and Unemployment Rate Focus on Economic Data Schedule:

During the second half of the 2011-2012 school year, (January-May), EconEdLink will publish four Focus on Economic Data lessons on "employment and the unemployment rate." The lessons will begin with the 'basics' in January and progressively focus more on complex data, issues and comparisons. All monthly Focuses on Economic Data will include the current data and significant recent changes.

  • January: employment and unemployment data basics. What is employment? What is the unemployment rate? How are they measured? What is the current data? What do they mean?
  • February: details and issues about the measurement and meaning of employment and unemployment, adding concepts such as underemployment, full employment, etc.
  • March: detailed breakdown of the data by region and industry (trends, identifying trends and comparisons of regions and demographic groups
  • April: the relationships of employment and unemployment data to other economic data, such as GDP, CPI, etc., and the business cycle.  THIS LESSON]
  • May: Year-end summary.

RESOURCES


Key Economic Indicators

as of April 6, 2012

Inflation

On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers rose 0.4 percent in February (2012) after rising 0.2 percent in January (2012). The index for all items less food and energy rose 0.1 percent in February after increasing 0.2 percent in January

Employment and Unemployment

Nonfarm payroll employment rose by 120,000 in March, and the unemployment rate was little changed at 8.2 percent (down from 8.3 percent). Employment rose in manufacturing, food services and drinking places, and health care, but was down in retail trade.

Real GDP

Real gross domestic product increased at an annual rate of 3.0 percent in the fourth quarter of 2011 (that is, from the third quarter to the fourth quarter), according to the "third" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 1.8 percent.

Federal Reserve

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

PROCESS

In March, 2012, U.S. non-farm employment increased by 120,000.  This followed three months of job gains averaging 246,000 per month.  The unemployment rate dropped from 8.3 percent to 8.2 percent, with 133,00 fewer unemployed, but there was also a decrease  in the size of the labor force by 169,000 people.

What do these numbers mean?  Take a look at the April 6, 2012, BLS announcement.

The Employment Situation – March 2012
U.S. Bureau of Labor Statistics
Released April 6, 2012

"Nonfarm payroll employment rose by 120,000 in March, and the unemployment rate was little changed at 8.2 percent, the U.S. Bureau of Labor Statistics reported today. Employment rose in manufacturing, food services and drinking places, and health care, but was down in retail trade."

Note:  Unless otherwise cited, all quoted materials in this lesson are from the April 6, 2012, BLS "Employment Situation - March 2012" news release.

March 2012 Employment and Unemployment Data Highlights

  • The number of unemployed people in the U.S. decreased by 133,000 to 12,673,000.
  • The number of employed persons in the U.S. decreased by 31,000 to 142,034,000.
  • The national unemployment rate fell by 0.1 percent to 8.2 percent.
  • Since March, 2011,  the unemployment rate has declined by 0.7 percentage point.
  • Unemployment rates decreased for adult men, adult women, and all ethnic groups.
  • The unemployment rates for teens (ages 16-19) increased 1.2 percentage points.

Figure 1, below, shows the basic U.S. labor force data for March, 2012.  Take a good look at the March data.  Do you see any data that impacts you or your family's current life or future?

[Teacher Note:  This is a good time to review the components of the labor force data.  Understanding the various components puts the reported unemployment rate into perspective.]

figure 1

Figure 2, below, provides more unemployment data for the month of March, 2012, including unemployment rates by ethnicity and educational attainment.  Do you see any interesting data?

figure 2

[Teacher Note:  Point out the differences between unemployment rates for the several levels of education. Can student make the connection between education level and employability?  The BLS web page “Education Pays,” shows unemployment rate and median weekly income by level of educational attainment.  Link: www.bls.gov/emp/ep_chart_001.htm .]

Critics of the BLS labor market data argue that the extent of unemployment is understated in the BLS announcements.  To fully understand the current "employment situation," you have to look at the history.  

  • Many people who were once in the labor force are no longer seeking work.  The BLS reported, "The civilian labor force participation rate (63.8 percent) and the employment-population ratio (58.5 percent) were little changed in March."   Until the end of 2008, the labor force participation rate had consistently been over 66 percent for the previous 20 years. The employment-population ratio had been between 62 and 64 percent since 1993.  Why do you think these rates of labor force participation remained low?
  • The BLS also reported, "The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) fell from 8.1 to 7.7 million over the month. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job."
  • Some people have simply given-up looking for jobs. The BLS reported, "In March, 2.4 million persons were marginally attached to the labor force, essentially unchanged 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. If jobs were available, do you think these people would seek them and become counted as in the labor force?

A note about the marginally attached, workers "Among the marginally attached, there were 865,000 discouraged workers in March, about the same as 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 in March had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities."

[Teacher Note:  Students may have opinions about how to count the marginally attached and discouraged workers.  Technically, if they did not seek employment, they are not “unemployed.” What do your students have to say about the “accuracy” of the unemployment rate? Maybe the BLS should count two half-time workers (involuntary part-time) as one full unemployed worker.  This might be an interesting discussion about “real” unemployment or about the validity of statistics.]

Establishment Survey Data – Employment Data

The Establishment Survey measures, among other things, employment trends in various industry groups.

"Total nonfarm payroll employment rose by 120,000 in March. In the prior 3 months, payroll employment had risen by an average of 246,000 per month. Private-sector employment grew by 121,000 in March, including gains in manufacturing, food services and drinking places, and health care. Retail trade lost jobs over the month. Government employment was essentially unchanged." 

Since the recession low number of 153,091,000 employed in December, 2009, the economy has had a net gain of 1.6 million jobs, to date.

Industry Employment Change Highlights, March 2012

Take a look at the change in the employment levels for the major industry groups in March, 2012, in Figure 3, below.

figure 3

The National Bureau of Economic Research (NBER) announced that the 2008-2009 recession ended in June, 2009, but significant job growth did not begin until many months later.  U.S. non-farm employment has increased by 1,315,000 jobs in the past year (March 2011 to March 2012).  Figure 3, below, shows the employment breakdown by industry category in the past year.

Business Cycles and Unemployment

Figure 4, below, shows the monthly U.S. unemployment rates from 1990 to the present.  Note the “up and down” cycles of high and low unemployment over time period.  These generally follow the “business cycles.”   Periods of very high unemployment are typically correlated with period of slowing or decreasing GDP growth. 

[Teacher Note:  This is a great time to review the concept of the “business cycle.”  The NBER web page defines busies cycles and the factors used by the Business Cycle Dating Committee to identify recessions.]

figure4

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 in a recession. Let's take a look at how the three macroeconomic measurements in the "Focus on Economic Data" lesson series compare recently and over the last few years. Figure 5, below, illustrates a typical business cycle, from trough to a period of growth, to the peak, to a period of decline, and back to a trough. 

figure 5

Employment and Other Macroeconomic Data

Employment and Unemployment (Recap of this Month’s Data)

"Nonfarm payroll employment rose by 120,000 in March, and the unemployment rate was little changed at 8.2 percent, the U.S. Bureau of Labor Statistics reported today. Employment rose in manufacturing, food services and drinking places, and health care, but was down in retail trade."

After losing over 2.2 million jobs in 2008 and almost 4.7 million jobs in 2009, the U.S. economy reversed the trend since early 2010.  As previously stated in this lesson, the economy has gained over 1.6 million jobs since December, 2009.  Although the number of U.S. non-farm jobs has been increasing, total non-farm employment is still well-below the high level of 13,996,000 jobs reported in January, 2008.

Real Gross Domestic Product (Real GDP)

"Real GDP increased 1.7 percent in 2011 (that is, from the 2010 annual level to the 2011 annual level), compared with an increase of 3.0 percent in 2010." Bureau of Economic Analysis, "Gross Domestic Product, 4th quarter 2011 and annual 2011 (third estimate)," March 29, 2012.

The U.S. rate of GDP growth fell-off considerably in 2008, the beginning of the recession. 2008 saw decreases in real GDP in three of four quarters. The losses continued through the second quarter of 2009, when growth began again. In 2010, U.S. real GDP increased at an annual rate (average of the quarterly rates) of 2.9 percent. In 2011, the U.S. GDP growth rate slowed somewhat to 1.7 percent.

Figure 6, below, shows the quarterly changes in real GDP growth over the last few years.  Note the "cycles" of increased and decreased growth rates. Those periods with lines below the "0" line are quarters of negative growth.

figure 6

[Note to teachers: Ask students to explain how the rate of GDP growth and changes in employment are related.]

Consumer Price Index

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in February on a seasonally adjusted basis. Over the last 12 months, February 2010 to February 2011, the all items price index increased 2.1 percent before seasonal adjustment.

Though the seasonally adjusted increase in the all items index was broad-based in the last month, the energy index was once again the largest contributor.  The gasoline index continued to rise, as it had for much of the last year.  The “food at home” index had its largest increase since July 2008. 

Although many people fear future inflation as a result of the rising federal debt and continued problems in some financial markets, there has been little evidence of inflationary pressures the current period of time.

figure 7

[Note to teachers: Ask students how they think inflation affects people's consumer and saving decisions.  Do people spend less if they think prices are rising?]

Monetary Policy – Federal Funds Rate

Through its last meeting in March, 2012, the Federal Reserve System’s Federal Open Market Committee (FOMC) has kept its target for the federal funds rate at 0 - 1/4 percent, the level established in December 16, 2008.  The FOMC again stated in March that the rate will be kept low in the near future.  The intent of the low interest rate policy is to stimulate the economy by making borrowing - for consumption and investment – cheaper.  Figure 8, below, shows the recent history of the federal funds rate target.

figure 8

Recent History of Macroeconomic Data

The chart below, Figure 9, compares the primary macroeconomic data, real GDP growth, consumer price index, the unemployment rate, and the federal funds target rate, from 1999 to the present.  Are there patterns in their relationships?

[Teacher note: 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 9

[Note to teachers:  Use Figure 9 to reinforce students' understanding of the recession in 2008-2009.  Note the slow growth, increased unemployment, accommodative Fed policies, and less inflationary pressure.]

ASSESSMENT ACTIVITY

Have your students click the start button below to complete interactive exercises to assess their knowledge of the Unemployment lesson.

Essay Questions:


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?

[Student answers will vary. The key is that they can explain the meaning of the indicator relative to the general definition of a recession.]

CONCLUSION

Once again, the BLS reported, "Nonfarm payroll employment rose by 120,000 in March, and the unemployment rate was little changed at 8.2 percent, the U.S. Bureau of Labor Statistics reported today. Employment rose in manufacturing, food services and drinking places, and health care, but was down in retail trade."

The pace of job growth seems to have slowed from the increases in the past few months.  Even with a string of monthly job gains, over twelve million Americans remain unemployed and many more are underemployed or have given-up looking for jobs.

There is still some fear that this recovery will be "jobless," meaning that the increased output is from improved capital resources and productivity increases, not more employed workers. 

Some people are questioning the traditional concept of the "natural rate of unemployment" and the level considered to be "full employment." Remember, full employment may include those who are frictionally unemployed (changing jobs) and some who are structurally unemployed and the jobs they seek no longer exist where they seek them.  The "real" full employment level of unemployment may be those who are cyclically unemployed - not working because of inadequate demand for the products they produce.  Estimates of the full employment level of unemployment range from 2 to 7 percent.  For the fifteen years prior to the 2008-2009 recession, the U.S. unemployment rate fluctuated between 4 and 6 percent, with one month below 4 percent, the 3.8 percent low level in April, 2000. There are still over 13.5 million unemployed people in the United States.

Is the "real" level of unemployment 8.2 percent?  If we subtract, say, 6 percent for the frictionally and some structurally unemployed, is the "real" rate 2.8%.  Are these the people we can expect to be reemployed as the economy reaches a peak in the current business cycle?

Then again, what if we add the marginally attached and part-time workers?  Should the real unemployment rate be higher?

EXTENSION ACTIVITY

How do other economic indicators compare to the recent changes in real GDP, unemployment rate, consumer price index, and the federal funds rate target? Take a look at some of the indicators listed below.

The Conference Board's Index of Leading Economic Indicators is published monthly.  The ten components of The Conference Board Leading Economic Index® for the U.S. include:

  • Average weekly hours, manufacturing
  • Average weekly initial claims for unemployment insurance
  • Manufacturers’ new orders, consumer goods and materials
  • Index of supplier deliveries – vendor performance
  • Manufacturers' new orders, nondefense capital goods
  • Building permits, new private housing units
  • Stock prices, 500 common stocks
  • Money supply, M2
  • Interest rate spread, 10-year Treasury bonds less federal funds
  • Index of consumer expectations

Access the Leading Indicators: www.conference-board.org/data/bcicountry.cfm?cid=1

  1. How does the indicator reflect the current economic problems?
  2. Is the recent history of the indicator similar or related to the GDP, unemployment, or CPI?
  3. How are people or businesses impacted by the economic data?