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The lesson summarizes the content of the April 4, 2008, U.S. Department of Labor, Bureau of Labor Statistics, announcement of the unemployment rate and employment data for the month of March 2008. The meaning and importance of the data are discussed. Students consider the implications of the data for the economy and themselves. Exercises are included for reinforcing knowledge of the concepts.

KEY CONCEPTS

Business, Business Cycles, Economic Growth, Full Employment, Labor, Labor Force, Labor Market, Macroeconomic Indicators, Productivity, Trade-offs among Goals, Types of 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 February to March 2008.
  • Identify the recent patterns of changes in employment and unemployment in the U.S. economy.
  • Determine the factors that influenced the reported unemployment rate and implications for the future of the U.S. and world economy.

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...

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: April 4, 2008

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


'The unemployment rate rose from 4.8 to 5.1 percent in March, and nonfarm payroll employment continued to trend down (-80,000), the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Over the past 3 months, payroll employment has declined by 232,000. In March, employment continued to fall in construction, manufacturing, and employment services, while health care, food services, and mining added jobs. Average hourly earnings rose by 5 cents, or 0.3 percent, over the month.'

MATERIALS


Key Economic Indicators

as of April 4, 2008

Inflation

The Consumer Price Index for All Urban Consumers increased 0.3 percent in February before seasonal adjustment. The February level of 211.693 was 4.0 percent higher than in February, 2007.

Employment and Unemployment

The number of unemployed persons increased by 434,000 to 7.8 million in March, and the unemployment rate rose by 0.3 percentage point to 5.1 percent. Since March 2007, the number of unemployed persons has increased by 1.1 million, and the unemployment rate has risen by 0.7 percentage point.

Real GDP

Real gross domestic product increased at an annual rate of 0.6 percent in the fourth quarter of 2007.

Federal Reserve

The Federal Open Market Committee lowered the target for the federal funds rate 75 basis points to 2-1/4 percent.

PROCESS

Date of Announcement: April 4, 2008: U.S. Bureau of Labor Statistics announcement: 'The Employment Situation, March 2008'

'The unemployment rate rose from 4.8 to 5.1 percent in March, and nonfarm payroll employment continued to trend down (-80,000), the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Over the past 3 months, payroll employment has declined by 232,000. In March, employment continued to fall in construction, manufacturing, and employment services, while health care, food services, and mining added jobs. Average hourly earnings rose by 5 cents, or 0.3 percent, over the month.'

The BLS announcements also provide detailed data on employment and unemployment by demographic group, labor force, and other relevant data:

Unemployment


'The number of unemployed persons increased by 434,000 to 7.8 million in March, and the unemployment rate rose by 0.3 percentage point to 5.1 percent. Since March 2007, the number of unemployed persons has increased by 1.1 million, and the unemployment rate has risen by 0.7 percentage point.

Over the month, unemployment rates rose for adult men (to 4.6 percent), adult women (4.6 percent), and Hispanics (6.9 percent). The jobless rates edged up for blacks (to 9.0 percent) and whites (4.5 percent), while the rate for teenagers (15.8 percent) was essentially unchanged. The unemployment rate for Asians was 3.6 percent, not seasonally adjusted.

In March, the number of persons unemployed because they lost jobs increased by 300,000 to 4.2 million. Over the past 12 months, the number of unemployed job losers has increased by 914,000.'

Total Employment and the Labor Force


'The civilian labor force rose to 153.8 million over the month, offsetting a decline in the prior month. The labor force participation rate was 66.0 percent in March and has remained at or near that level since last spring. Total employment held at 146.0 million. The employment-population ratio was little changed over the month at 62.6 percent. The ratio was down from its most recent peak of 63.4 percent in December 2006.

The number of persons who worked part time for economic reasons, at 4.9 million in March, was little changed over the month, but has risen by 629,000 over the past 12 months. This category includes persons who indicated that they were working part time because their hours had been cut back or because they were unable to find full-time jobs.'

Persons Not in the Labor Force


'About 1.4 million persons (not seasonally adjusted) were marginally attached to the labor force in March. 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 401,000 discouraged workers in March, about the same as a year earlier. Discouraged workers are defined as persons not currently looking for work specifically because they believed no jobs were available for them. The other 951,000 persons classified as marginally attached to the labor force in March cited reasons such as school attendance or family responsibilities.'

Figure 1 compares the unemployment rates of selected demographic groups from the April 4 BLS announcement. Note the difference in unemployment rates for the various groups. A notable exception to the increases among groups is the rate for teenagers, which decreased by 0.8 percent from February to March, but continues to be significantly higher than other groups.

Figure 1: U nemployment Rate by Demographic Group, March 2008  

 

Q4 2007

Q1 2008

Jan. 2008

Feb. 2008

Mar. 2008

Change Feb.-Mar.

All Workers

4.8

4.9

4.9

4.8

5.1

0.3

Adult Men

4.3

4.4

4.4

4.3

4.6

0.3  

Adult Women

4.2

4.3

4.2

4.2

4.6

0.4  

Teenagers

16.4

16.8

18.0

16.6

15.8

-0.8

Whites

4.3

4.4

4.4

4.3

4.5

0.2

Black/African Americans

8.6

8.8

9.2

8.3

9.0

0.7  

Hispanic Latinos

5.9

6.5

6.3

6.2

6.9

0.7

Figure 2 summarizes the status of the labor force in March 2008, including the total size, employment, unemployment and those not participating in the labor force. Note that both the decrease in the size of the labor force and the increase the number of non-participants from January to February, 2008, were reversed in March.

Figure 2: Labor Force Status March 2008

 

Q4

2007

Q1

2008

Jan.

2008

Feb.

2008

Mar.

2008

Change

Feb.-Mar.

Civilian Labor Force

153,667

153,661

153,824

153,374

153,7/84

410

Employment

146,291

146,070

146,248

145,993

145,969

-24

Unemployment

7,375

7,591

7,576

7,381

7,815

434

Not in Labor Force

79,270

79,146

78,792

79,436

79,211

-225

[Note to teacher: Link to the full BLS 'Employment Situation' announcement: www.bls.gov/news.release/empsit.nr0.htm .]

The Health of the U.S. Economy


The March unemployment rate increase to 5.1 percent and the loss of 80,000 jobs is further evidence of a slowdown of the U.S. economy. The unemployment rate rose three-tenths of a percentage point, to 5.1 percent, the highest level since September 2005, after Hurricane Katrina.

The BLS commented that the majority of the newly unemployed in March were men and women searching for jobs after a layoffs or they had previously been temporary workers. The job losses were across many industries and service companies.

Those who argue that the U.S. is already in a recession will cite these numbers as confirming data. Those who believe we are entering a recession will say this evidence that we are continuing to decline. Still others will say that the U.S. has already hit the bottom of a business cycle and may at his time be recovering. Few continue to argue that a U.S. recession is not a reality. Federal Reserve chairman, Ben Bernanke, testified to Congress on April 2 that “a recession is possible,” but not necessarily upon us.

Bernanke added a more positive view of the near future. 'Clearly, the U.S. economy is going through a very difficult period. But among the great strengths of our economy is its ability to adapt and to respond to diverse challenges. Much necessary economic and financial adjustment has already taken place, and monetary and fiscal policies are in train that should support a return to growth in the second half of this year and next year. I remain confident in our economy's long-term prospects.'

Source: Federal Reserve Chairman Ben S. Bernanke, 'Developments in the financial markets,' Testimony before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, April 3, 2008: www.federalreserve.gov/newsevents/testimony/bernanke20080403a.htm .

The Politicians Respond

After the employment announcement, Speaker of the House, Nancy Pelosi, said she would propose an additional economic stimulus package that would add to the $150 billion in tax rebates scheduled to be mailed to millions of Americans beginning next month.

The presidential candidates, already divided over how to deal with the 'mortgage meltdown' and housing crisis, differed again about how to generate jobs and help the unemployed. Senator Clinton and Senator Obama supported another stimulus package and an extension of unemployment benefits. John McCain proposed lower taxes and less regulation to create 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

The March Employment Situation by Industry Group: Industry Payroll Employment (Source: BLS Establishment Survey Data)

'Total nonfarm payroll employment continued to trend down in March (-80,000), and has fallen by 232,000 over the past 3 months. In March, job losses occurred in construction, manufacturing, and employment services. Employment in health care, food services, and mining remained on an upward trend.

Employment in construction declined by 51,000 in March and has fallen by 394,000 since its peak in September 2006. Most of the March decrease in employment occurred among specialty trade contractors (-42,000), with both residential and nonresidential contractors contributing to the decline.

Manufacturing employment fell by 48,000 in March and by 310,000 over the past 12 months. Employment in motor vehicles and parts was down by 24,000 over the month, largely reflecting the impact of a strike in auto parts manufacturing. The strike resulted in a parts shortage that led to plant shutdowns elsewhere in the auto industry. During the 12 months ending in February, the motor vehicle and parts industry
lost an average of 6,000 jobs per month.

In March, factory employment also fell in several construction-related industries, including wood products (-5,000), nonmetallic mineral products (-5,000), and furniture and related products (-5,000). Plastics and rubber products and textile mills also lost jobs over the month.

Professional and business services employment edged down in March (-35,000). The number of jobs in the employment services component declined by 42,000 over the month; about half of the decline occurred in the temporary help services industry. Employment services has lost 210,000 jobs since its most recent peak in August 2006. In March, employment in professional and technical services showed little change for the third month in a row. This industry had added an average of 27,000 jobs per month in 2007.

In March, employment in retail trade was little changed. Job losses continued in building material and garden supply stores (-9,000), furniture and home furnishings stores (-5,000), and department stores (-5,000). Over the past 12 months, retail trade has lost 107,000 jobs.

Employment in financial activities changed little in March. Credit intermediation employment edged down over the month and has fallen by 120,000 since its most recent peak in October 2006.

Health care employment continued to expand in March, rising by 23,000. Hospitals added 14,000 jobs. Over the past 12 months, health care has added 363,000 jobs. Social assistance employment edged up over the month (11,000).

In March, food services employment continued to trend upward (23,000). Employment in the industry has increased by 288,000 over the past 12 months.

Employment in mining rose by 6,000 in March. Support activities for mining, particularly those related to oil and gas extraction, accounted for about two-thirds of the increase.'

U.S. Employment Data

In the United States in March 2008, non-farm employment totaled 145,969,000 people. 7,815,000 people were unemployed. The total of employed and unemployed person equals the labor force. The labor force participation rate (labor force as a percent of the civilian noninstitutional population) was 66.0 percent and has remained at about that level for the last year.

Note: Included in these calculations are persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces.

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 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, 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   232,995,000   (excluding those under 16, members of the military, and persons in institutions)
- Not in Labor force*  

79,211,000

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

153,784,000

  (total population minus those not in labor force)
- Employed   145,969,000   (individuals with jobs)
= Unemployed*   7,815,000   (individuals without a job and actively searching)

 

Unemployment Rate =

7,815,000 divided by 153,784,000

= 5.1%

[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.]


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 3 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 4. 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 4 also shows the high levels reached in recessions in the 1970s and early 1980s recessions of over 8 and 10 percent.

figure4

Figure 5 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 6 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, 2008 and 81,000 jobs in March.

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 .

CONCLUSION

Review with your students the following employment and unemployment data for March 2008.

  • The U.S. Unemployment Rate increased to 5.1% in March 2008, an increase of 0.3% from February 2008.
  • The number of unemployed persons increased by 434,000 to a total of 7,815,000.
  • The civilian labor force rose to 153.8 million over the month.
  • The labor force participation rate was 66.0 percent in March.
  • The number of persons categorized as 'not in the labor force' decreased by 225,000 in March to a total of 79,211,000.

Discuss:

1. What do these numbers tell you about the health of the U.S. economy?

[Answers will vary, but all of the data reported in March are negative and seem to indicate a decline in jobs and income.]

2. Do you think they are signs of a recession?

[Whether or not we are in a recession (or will be) is a technical matter, depending primarily on growth of GDP. Students understand the general relationship between employment, income, and consumption.]

3. What do you think will happen to U.S. output in the coming months if employment declines and unemployment continues to increase?

[Higher unemployment and/or lower employment will normally result in lower consumer income and spending.]

ASSESSMENT ACTIVITY

Have the students click the start button below to complete an interactive quiz on the FOMC Lesson. Answers are below.

Additional Assessment:

The BLS definition of an unemployed person is: Persons aged 16 years and older who had no employment during the reference week, were available for work, except for temporary illness, and had made specific efforts to find employment sometime during the 4-week period ending with the reference week. Persons who were waiting to be recalled to a job from which they had been laid off need not have been looking for work to be classified as unemployed. The unemployment rate represents the number unemployed as a percent of the labor force.

What is the rational for excluding these groups from the determination of the unemployment rate?

a. People under age 16.
b. Retired people.
c. People not working or seeking work.
d. People in prison.

[The base number of the employment and unemployment is the labor force. The people in these four groups are not part of the labor force. Those under 16 are almost always in school and not available for full time employment. People in prison cannot be available to work.

Retired person or those who are not seeking work have chosen to not be included. Those who have given up looking because jobs are not available are not included. Their situations may reflect problems other than cyclical unemployment.]

EXTENSION ACTIVITY

Have your students link to the BLS unemployment data by state, region or metropolitan area. They can compare their state, region or metropolitan area to other areas of the country.

  • What are the patterns, if any?
  • How does their area compare?
  • What do they think accounts for the differences between areas?

Link: www.bls.gov/lau/#overview

Link to additional information about state and local area statistics: www.bls.gov/lau/launews1.htm