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

KEY CONCEPTS

Deflation, Economic Growth, Economic Institutions, Inflation, Productivity, Tools of the Federal Reserve

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 for the month of March was 4.4 percent, a decrease from the 4.5 percent in February. Total employment rose by 180,000 in March, more than the revised 119,000 increase in February.

 

arrowThe unemployment rate fell
slightly to 4.4%.

 

arrowEmployment increased solidly. An increase of
180,000 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.

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 s

The unemployment rate for the month of March was 4.4 percent, a decrease from the 4.5 percent in February. Total employment rose by 180,000 in March, more than the revised 119,000 increase in February.

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   231,034,000   (excluding those under 16, members of the military, and persons in institutions)
- Not in Labor force  

78,055,000

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

152,979,000

  (total population minus those not in labor force)
- Employed   146,254,000   (individuals with jobs)
= Unemployed   6,724,000   (individuals without a job and actively searching)

 

Unemployment Rate = 6,724,000
146,254,000 + 6,724,000
= 4.4%

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.

Data Trends

The trend over the 1990s to the 2001 recession was a decrease in unemployment and an increase in employment. In 1999 and 2000, annual growth in employment was 2.8 million people, with approximately 155,000 more people employed each month. Over 15 million people were added to the jobs over the decade.

Figure 1 shows the rises in unemployment associated with the recession in 1990 to 1991 and the recession of 2001 with the almost decade long fall in unemployment in between.

At its low in December 2000, the unemployment rate equaled 3.9 percent. In 2001, unemployment rates began to increase. Unemployment rates continued to increase after the 2001 recession, as the economy only slowly recovered.

From March 2001 to the summer 2003, the trend was generally one of increasing unemployment rates and decreasing employment.

However, unemployment rates have been steadily decreasing since reaching a high of 6.3 percent in June of 2003.

Relevance of Unemployment Announcements

The monthly 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. Those costs are explored in this case study.

Employment

A second important part of each month's unemployment announcement is the report of the number of individuals employed. Unemployment and unemployment rates receive much of the press attention and rightfully so. But employment and a loss or gain in jobs are also important indicators of progress in the economy. The failure of the economy to produce as many jobs as we have experienced in the past was of particular interest and concern until about two years ago.

The failures of employment to increase at the same rate as population growth ultimately means higher unemployment or individuals leaving the labor force.

Employment is increasing soundly and has been on an upward trend at rates that will provide sufficient jobs for new entrants since the beginning of 2004.

Total nonfarm payroll employment (seasonally adjusted) rose by 180,000 in March to almost 138 million. The levels of employment have been growing at levels large enough (about 125,000) to provide new entrants jobs for most of 2004, 2005, and 2006.

The largest increases in jobs in March were in education and retail trade in the service sector of the economy. Jobs in the goods-producing sector increased in construction and fell in manufacturing.

Figure 3 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.

Figure 4 shows the monthly change in employment. Since the beginning of 2004, the overall growth rates have been rapid enough to provide jobs for new entrants into the labor force.

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 4.0 percent for adult men to 14.5 percent for teenagers.

Table 2: Unemployment Statistics
by Gender, Race and Age
Adult Men 4.0%
Adult Women 3.8%
Whites 3.8%
Blacks 8.3%
Hispanics 5.1%
Teenagers 14.5%

The Costs of Unemployment

There are significant personal costs to unemployment. Unemployed workers often do not have the income to support themselves or their families. The stress of being unemployed is reflected 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 the unemployment compensation provided to many unemployed workers. Government spending is funded, in the largest part, from tax revenues. Therefore, unemployment compensation spreads out the cost of being unemployed among taxpayers, instead of having the entire burden fall on the unemployed worker.

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 standards of living are lower as a result.

Case Study Discussion Questions

Have students complete the interactive exercise below.

 

  1. What are the key parts of the unemployment announcement?[The unemployment rate for the month of March was 4.4 percent, a decrease from the 4.5 percent in February. Total employment rose by 180,000 in March, more than the revised 119,000 increase in February.]
     
  2. What are the relevant economic concepts? [Unemployment Rate, Costs of Unemployment, Employment.]
     
  3. What does this mean for workers? [Employment numbers rose more than expected and unemployment decreased. This could be a sign of a growing labor market.]

 

Classroom Discussion Activity

Go to the and check the Local Area Unemployment Statistics for your city and state (www.bls.gov/news.release/metro.t01.htm).

  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.

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