This lesson explores the November 7, 2008, U.S. Department of Labor, Bureau of Labor Statistics, announcement of the unemployment rate and employment data for the month of October, 2008. The meaning and importance of the data are discussed. Students consider the implications of the data for themselves, their community and the U.S. economy. Exercises are included for reinforcing knowledge of the concepts.
- Review the most recently reported U.S. employment and unemployment data.
- Determine the changes in U.S. employment and unemployment from September to October, 2008.
- Determine the factors that have influenced the unemployment rate.
- Explore the implications of the employment and unemployment data for U.S. and world economy.
Current Key Economic Indicatorsas of November 10, 2014
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.
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.
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.
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.
Each month the Bureau of Labor Statistics (BLS) Current Employment Statistics program surveys 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 non-farm payrolls. The BLS then announces the monthly 'Employment Situation,' reporting the current employment and unemployment data estimates.
U.S. Bureau of Labor Statistics: The Employment Situation, October 2008 (Data released November 7, 2008.)
"Nonfarm payroll employment fell by 240,000 in October, and the unemployment rate rose from 6.1 to 6.5 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. October's drop in payroll employment followed declines of 127,000 in August and 284,000 in September, as revised."
"The unemployment rate rose by 0.4 percentage point to 6.5 percent in October, and the number of unemployed persons increased by 603,000 to 10.1 million. Over the past 12 months, the number of unemployed persons has increased by 2.8 million, and the unemployment rate has risen by 1.7 percentage points."
The November 7, 2008, BLS Press Release: This press release gives a full summary of U.S. employment situation in October of 2008.
'Frequently Asked Questions' About the Employment Reports: This BLS page answers common questions concerning employment reports.
Revision of Seasonally Adjusted Labor Force Series in 2008: This document is a BLS article on seasonal data adjustments.
Current Population Survey: This BLS page gives a comprehensive body of data of U.S. labor force characteristics.
How the Government Measures Unemployment: This BLS page shows the technique used by the U.S Government to measure unemployment.
Local Area Unemployment Statistics: This BLS page shows unemployment statistics in many different regions.
Mass Layoff Statistics: This BLS page shows statistics of people who are unemployed because of mass layoff actions.
Careers at BLS: This page shows job opportunities for the Bureau of Labor Statistics.
Labor Data Show Pain Across Country: This 2008 Wall Street Journal article discusses the fact that unemployment was at a 14-year high.
Assessment Activity: This interactive quiz tests students understanding of the unemployment lesson.
Real Earnings in October 2008: This BLS document charts weekly manufacturing wages.
Employment Status of the Civilian Population 25 years and Over by Educational Attainment: This BLS report shows employment statuses and wages based on education.
Key Economic Indicatorsas of November 7, 2008
The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent in September, before seasonal adjustment. The September level of 218.783 was 4.9 percent higher than in September 2007.
The unemployment rate rose by 0.4 percentage point to 6.5 percent in October, and the number of unemployed persons increased by 603,000 to 10.1 million.
U.S. real gross domestic product decreased at an annual rate of 0.3 percent in the third quarter of 2008,(advance estimate). In the second quarter, real GDP increased 2.8 percent.
At its October 29 meeting, the Federal Open Market Committee decided to reduce the target for the federal funds rate by 1/2 percent (50 basis points) to 1.0 percent.
The November 7, 2008, BLS announcement was the latest in a series of announcements of "bad news" for the U.S. economy. It confirmed the predictions of many that the economy is probably slipping into or now in a recession. The impact of these problems has been felt by almost all demographic groups and sectors.
The BLS announcement highlighted these details about unemployment in October, 2008
- The unemployment rates for adult men (6.3 percent), adult women (5.3 percent), whites (5.9 percent), and Hispanics (8.8 percent) rose in October.
- The jobless rates for teenagers (20.6 percent) and blacks (11.1 percent) were little changed.
- The unemployment rate for Asians in October was 3.8 percent, not seasonally adjusted.
- Among the unemployed, the number of persons who lost their job and did not expect to be recalled to work rose by 615,000 to 4.4 million in October. Over the past 12 months, the size of this group has increased by 1.7 million.
- The number of long-term unemployed (those jobless for 27 weeks or more) rose by 249,000 to 2.3 million. The long-term unemployed accounted for 22.3 percent of total unemployment. The newly unemployed--those who were jobless fewer than 5 weeks--increased by 212,000 to 3.1 million in October.
- The civilian labor force participation rate (66.1 percent) and the employment-population ratio (61.8 percent) were little changed in October. Since a recent high in December 2006, the employment-population ratio has declined by 1.6 percentage points.
- About 1.6 million persons (not seasonally adjusted) were marginally attached to the labor force in October, 273,000 more than 12 months earlier. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months. They are not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.
Employment and Unemployment by Industry Sector
Total nonfarm payroll employment fell by 240,000 in October, bringing job losses thus far in 2008 to 1.2 million.
The bad news:
- Manufacturing employment declined by 90,000 over the month.
- Construction employment fell by 49,000 in October, with declines throughout the industry.
- Within professional and business services, the employment services industry shed 51,000 jobs in October.
- Retail trade employment fell by 38,000 in October, with the largest losses occurring among automobile dealers (-20,000) and department stores (-18,000).
- Employment in financial activities declined by 24,000 in October and is down by 200,000 since its peak in December 2006.
There was some good news in the November 7 BLS report.
Health care employment continued to expand in October, with an increase of 26,000. Over the past 12 months, health care employment has grown by 348,000.
- The mining industry added 7,000 jobs in October. Since a low in April 2003, mining employment has grown by 246,000.
[Note to teacher: For additional national economic statistics on employment and unemployment go to the BLS "Current Population Survey
" web page.]
Why were people unemployed in October 2008?
Job losers and persons who completed temporary jobs... 56.6%
On temporary layoff................................. 13.3%
Not on temporary layoff.......................... 43.3%
Job leavers................................................. 9.3%
New entrants............................................. 8.2%
Total unemployed................................. 100.0%
Unemployed are a percentage of the civilian labor force
Job losers and persons who completed temporary jobs.... 3.7%
Job leavers............................................... 0.6%
New entrants........................................... 0.5%
Total unemployment............................... 6.5%
"Job losers" are unemployed persons who involuntarily lost their last job or who had completed a temporary job. This includes persons who were on temporary layoff expecting to return to work, as well as persons not on temporary layoff. Those not on temporary layoff include permanent job losers and persons whose temporary jobs had ended.
"Job leavers" are unemployed persons who quit or otherwise terminated their employment voluntarily and immediately began looking for work.
"Re-entrants" are unemployed persons who previously worked but were out of the labor force prior to beginning their job search.
"New entrants" are unemployed persons who never worked before and who are entering the labor force for the first time.
Weekly Hours Worked
The BLS also reports weekly hours worked each month. "In October, the average workweek for production and non-supervisory workers on private nonfarm payrolls was unchanged at 33.6 hours. The manufacturing workweek and factory overtime also were unchanged over the month at 40.6 and 3.6 hours, respectively."
"The index of aggregate weekly hours of production and non-supervisory workers on private nonfarm payrolls declined by 0.3 percent in October. The manufacturing index fell by 1.0 percent."
The BLS calculates the index of aggregate weekly hours by "dividing the current month's estimates of aggregate hours by the corresponding 2002 annual average levels. Aggregate hours estimates are the product of estimates of average weekly hours and production and non-supervisory worker employment."
For example, in manufacturing, the index of aggregate weekly hours worked was 89.3 in September and dropped to 88.4 in October - 1.0 percent decrease. In 2002, the base year, the the index was 100. The average of weekly hours for those employed in manufacturing has decreased by over 11 percent from 2002 to now. Those who are employed are working fewer regular hours and/or overtime.
The BLS also reports hourly wages and weekly earning in various sectors in a report titled, "Average hourly and weekly earnings of production and non-supervisory workers on private nonfarm payrolls by industry sector and selected industry detail."
Overall - all private employment - the average hourly wage increased from $17.60 in October 2007 to $18.21 in September 2008 and $18.22 in October 2008. Weekly earnings increased from $594.88 in October 2007 to $611.86 in September 2008 and $612.19 in October 2008.
In manufacturing, hourly wages increased from $17.34 in October 2997 to $17.83 in September 2008, but fell to $17.82 October 2008. Weekly wages in manufacturing were $717.88 in October 2007, increased to $729.25 in September 2008, and fell to $725.27 in October.
Unemployment and Gross Domestic Product (Output)
There is a natural relationship between employment/unemployment and the nation's output. All other things being equal, more workers will produce more goods and services, and earn more income to spend on goods and services. One other important variable is productivity. It is possible that fewer workers can produce greater output if the productivity of those worked improves.
One important question is: how closely are unemployment and GDP related? Economist Arthur Okun proposed in1962, that there is an inverse relationship between the change in the rate of unemployment and the difference between actual and potential real GDP. Referring only to unemployment above the “natural rate,” Okun's law states that for every one percent increase in the unemployment rate, real gross domestic product will fall by 2 or 3 percentage points. When the unemployment rate falls 1 percent below its natural rate, GDP falls 2-3 percent below it’s potential (full-employment level.)
If this is accurate, the NOVEMBER 25, 2008, real gross domestic product report from the Bureau of Economic Analysis (BEA) should reflect another decrease in output.
The BLS offers several online publications that explain the meaning and methodology of the employment and unemployment data:
- "How the Government Measures Unemployment "
- "Local Area Unemployment Statistics "
- "Mass Layoff Statistics "
Students may also be interested in the BLS information about Careers at BLS .
- How will a "fiscal stimulus" (giving consumer s more income to spend) be intended to impact the current economic conditions? [Putting more income in the hands of consumers is intended to increase their spending. If spending increases, more labor will be demanded to produce goods and services. A greater number of jobs producing goods and services will further result in more spending.]
What do these numbers mean?
Take another quick look at recent U.S. economic data:
- Unemployment increased .4 percent to 6.5 percent in October.
- The Consumer Price Index is 4.9 percent higher than a year ago.
- The rate of real GDP growth decreased by .3 percent in Q3.
Add to this the significant declines in stock prices and the increase in banking problems, and you don't see a very positive picture of the U.S. economy.
More people in almost all demographic groups were unemployed in October 2008. Many of the employed worked for fewer hours in October. Those who were unemployed were out of work for a longer average period of time.
Clearly, some governmental policy action is needed.
A day after the BLS report, a Wall Street Journal article summed up the complicated economic choices faced by the current administration and President-elect Barack Obama.
"President-elect Barack Obama, in his first major remarks since Election Day, called Friday for extended unemployment benefits and a "rescue plan for the middle class" as new employment figures signaled that the economic crunch is worsening.
"Lawmakers are considering a package of measures worth as much as $100 billion when Congress reconvenes later this month. "If it does not get done in the lame-duck session, it will be the first thing I get done as president of the United States," he (Obama) said."
"The Dow Jones Industrial Average rose 2.9% Friday as investors largely shrugged off the surge in the U.S. jobless rate, anticipation of which had helped spark the market's 9.7% sell off on Wednesday and Thursday. That slide was essentially factored into the market when the unemployment figures were released."
"This economy is in some ways convulsing as we go through the fourth quarter," with businesses cutting back sharply and households under increasing pressure as their homes and savings lose value, said Bruce Kasman, chief economist at J.P. Morgan Chase.
"Some economists aren't predicting a recovery until the second half of next year at the earliest. Goldman Sachs economists on Friday downgraded their prospects for the job market, projecting an unemployment rate of 8.5% by the end of 2009, up from an earlier estimate of 8%. In the 1981-82 recession, the worst since World War II, the unemployment rate peaked at 10.8%. It rose as high as 7.8% after the 1990-91 recession and topped out at 6.3% in the aftermath of the 2001 downturn."
"Firms are increasingly cutting back on full-time workers as they brace for a deeper downturn. An alternative Labor Department measure of total unemployment, including part-time workers who want full-time work but can't get it, hit 11.8% in October, up from 11% a month earlier."
"With sales continuing to sag heading into the holiday season, some retailers are already laying off workers, closing stores, reducing seasonal help and, in some cases, going out of business altogether. The contraction is expected to accelerate in coming months."
"The credit crunch and decline in consumer spending has already knocked out several retailers. Home furnishings retailer Linens 'n Things trimmed about a third of its 589 stores after trying a bankruptcy reorganization, but last month was forced to liquidate. Department store chain Mervyns LLC said it closed its 149 remaining stores after 60 years in business."
"The weakening job market, from layoffs to little or no wage gains, is expected to eat further into consumers' incomes, despite a modest cushion from the recent decline in gasoline prices. Most economists forecast that consumer spending, which accounts for two-thirds of economic activity, will contract sharply in the fourth quarter."
(CITATION: Sudeep Reddy, Kris Maher and Ilan Brats, "Labor Data Show Pain Across Economy , The Wall Street Journal, November 8, 2008.)
President-elect Obama suggests the need for another fiscal stimulus - putting more money in the hands of the unemployed and consumers. At his disposal are the fiscal policy tools of tax cuts or rebates, and increased government spending.
Which policy action do you think will work best?
- Tax rebates or cuts that give consumers more disposable income. Providing more disposable income is intended increase consumer spending that will, in turn, increase the demand for labor and create more income.
- Increased government spending that will directly create jobs. Spending can be for things like infrastructure improvements. This option not only provides income, but results in needed roads, bridges, etc.
- Which of these options is the best way to attack the current problems? Tax rebates will have a more immediate result, but spending will result in better roads, etc. Spending on infrastructure projects takes longer to implement. Spending leaves us with better roads, etc., but will require higher taxes or an increase in the government's debt.
- Who should benefit directly? Consumers who will spend more on goods and services or businesses who will invest in new capital and hire more employees?
Go to the BLS report: "Employment Status of the Civilian Population 25 Years and Over by Educational Attainment "
Discuss the relationship of unemployment incidence to people's educational attainment. Review the data for October 2008. Review the data for October 2008. Who is most likely to be unemployed?
]Note to Teacher: The unemployment rates reported by the BLS for levels of educational attainment are (October 2008):
U.S Average.................... 6.5%
Less Than High School Diploma... 10.3%
High School Diploma............. 6.3%
Some College.................... 5.2%
College Graduates............... 3.1%