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This lesson examines the April 3, 2009, U.S. Department of Labor, Bureau of Labor Statistics, announcement of employment data and the unemployment rate for the month of March 2009. 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, Full Employment, Labor Market, Macroeconomic Indicators, 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.
  • Compare employment data trends with price indexes and real GDP growth trends. 

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) 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 BLS announcement, "Employment Situation," April 3, 2009

[Note to teacher: Employment and Unemployment Rate Focus on Economic Data Schedule:  During the second half of this school year, (January-May), EconEdLink will publish five Focus on Economic Data lessons on "employment and the unemployment rate." During this time period, the lessons will begin with the 'basics' in January and progressively focus more on complex data, issues, and comparisons. All monthly lessons will include the current data and significant recent changes.

  • January: employment and unemployment basics. What is the level of employment? What is the unemployment rate? How are they measured? 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. 
  • May: school year-end review and final analysis.]

RESOURCES

Key Economic Indicators

as of April 3, 2009

Inflation

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in February, before seasonal adjustment. The February level of 212.193 was 0.2 percent higher than in February 2008.

Employment and Unemployment

Nonfarm payroll employment continued to decline sharply in March (-663,000), and the unemployment rate rose from 8.1 to 8.5 percent. Since the recession began in December 2007, 5.1 million jobs have been lost, with almost two-thirds (3.3 million) of the decrease occurring in the last 5 months."

Real GDP

Real gross domestic product decreased at an annual rate of 6.3 percent in the fourth quarter of 2008. In the advance estimates for Q4 issued in February, the decrease in real GDP was estimated to be 6.2 percent.

Federal Reserve

The FOMC maintained the target range for the federal funds rate at 0 to 1/4 percent and made this comment, "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

PROCESS

The United States economy lost over 600,000 additional jobs in March 2009, bringing the total of job losses to over five million since the recession began in December 2007. As the economy continues to contract, more jobs are expected to be lost.

The April 3, 2009 BLS announcement: The Employment Situation: March 2009

"Nonfarm payroll employment continued to decline sharply in March (-663,000), and the unemployment rate rose from 8.1 to 8.5 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Since the recession began in December 2007, 5.1 million jobs have been lost, with almost two-thirds (3.3 million) of the decrease occurring in the last 5 months. In March, job losses were large and widespread across the major industry sectors."

The March 2009 data on employment and unemployment show that the trend of declining employment over the past year has continued. The unemployment rate reached its highest level in 26 years - since November 1983. In addition to the larger number of unemployed, the labor force shrunk by 166,000. Table 1, below, shows the basic U.S. labor market data for February and March 2009. The population has increased and the labor force has decreased. There are 853,000 fewer employed people. Of those people, 694,000 more are counted as unemployed and 339,000 more people are not in the labor force. Additionally, 169,000 people who are not counted as being in the labor force (marginally attached) would like to have jobs.

Labor Force Data, February & March 2009
(Numbers in 1,000s)

  February March Change
Civilian Population* 234,913 235,086 +173
Civilian Labor Force 154,214 154,048 -166
Labor Force Participation Rate 65.6% 65.5% -0.1%
Number Employed 141,748 140,887 -853
Employment-Population Ratio 60.3% 59.9% +0.4%
Number Unemployed 12,467 13,161 +694
Unemployment Rate 8.1% 8.5% +0.4%
Number Not in Labor Force 80,699 81,038 +339
Persons Seeking Jobs** 5,645 5,814 +169
* Non-institutionalized population, age 16 and over.
** Marginally attached worked who are not counted as employed or unemployed (not in labor force), but who would like a job. 

Unemployment (Household Survey Data)

"In March, the number of unemployed persons increased by 694,000 to 13.2 million, and the unemployment rate rose to 8.5 percent. Over the past 12 months, the number of unemployed persons has grown by about 5.3 million, and the unemployment rate has risen by 3.4 percentage points. Half of the increase in both the number of unemployed and the unemployment rate occurred in the last four months." 

"The unemployment rates continued to trend upward in March for adult men (8.8 percent), adult women (7.0 percent), whites (7.9 percent), and Hispanics (11.4 percent). The jobless rates for blacks (13.3 percent) and teenagers (21.7 percent) were little changed over the month. The unemployment rate for Asians was 6.4 percent in March, not seasonally adjusted, up from 3.6 percent a year earlier."

Unemployment has increased for most demographic groups. The unemployment rate for Blacks/African Americans remained decreased slightly, as the unemployment rate for 16-19 year old Black/African Americans decreased from 38.8 to 32.5 percent - still a staggeringly high rate of joblessness. The BLS does not provide an explanation for this decrease. The unemployment rate for 16-19 year old Hispanics/Latinos also decreased from 25.5 to 24.9 percent. High unemployment rates for young workers, especially minorities, may reflect and create critical social issues.

The April 3 report included two more interesting pieces of data about job losses and the unemployment trend.

"Among the unemployed, the number of job losers and persons who completed temporary jobs increased by 547,000 to 8.2 million in March. This group has nearly doubled in size over the past 12 months." There are fewer continuing temporary jobs or new temporary jobs are not being created.
   
"The number of long-term unemployed (those jobless for 27 weeks or more) rose to 3.2 million over the month and has increased by about 1.9 million since the start of the recession in December 2007." Those who are unemployed are finding it more difficult to find new jobs or, at least, it is taking them longer. The federal government and many states have acted to provide longer periods of unemployment compensation.

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, as we are now, in a recession. Let's take a look at how the three macroeconomic measurements in the "Focus on Economic Data" lesson series compare over the last year and the current recession. Figure 1 illustrates a "typical" business cycle.



Unemployment Figure 1

Review of Recent Economic Data

In March, the number of unemployed persons increased by 694,000 to 13.2 million, and the unemployment rate rose to 8.5 percent. Over the past 12 months, the number of unemployed persons has grown by about 5.3 million, and the unemployment rate has risen by 3.4 percentage points.

Real gross domestic product (Real GDP), the output of goods and services produced by labor and property located in the United States, decreased at an annual rate of 6.3 percent in the fourth quarter of 2008. In the third quarter, real GDP decreased 0.5 percent.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in February, before seasonal adjustment. The February level of 212.193 (1982-84=100) was 0.2 percent higher than in February 2008.

The Federal Reserve FOMC kept its target for the federal funds rate at 0 - 1/4 percent and suggested that the rate will be kept low in the near future.

Table 2 provides a summary of four key macroeconomic measurements over the past ten years.

Table 2: Selected Macroeconomic Data
1999-2009

Year Real GDP Change (annual) Unemployment Rate (annual) CPI-U (annual) Fed Funds Rate Target (March)
1999 4.5 4.2 2.2 4.75
2000 3.7 4.0 3.4 6.00
2001 0.8 4.3 2.8 5.00
2002 1.6 5.7 1.6 1.75
2003 2.6 5.9 2.3 1.00
2004 3.6 5.8 2.7 1.00
2005 2.9 5.2 3.4 2.75
2006 2.8 4.7 3.2 4.75
2007 2.0 4.4 2.8 5.25
2008 1.1 5.1 3.8 2.25
2009 ** 8.5 0.2 -0.25
*2009 data is through the month of March
**GDP data for 2009 is not yet available

Unemployment and Real GDP Growth

Looking at Table 2, you will notice a general relationship between real GDP growth and the unemployment rate. From 1999 to 2008, as real GDP growth declined, generally, the unemployment rate increased. Real GDP growth is a coincident indicator and unemployment is a lagging indicator, so when looking at quarterly changes, you will notice that the decreases in real GDP growth were followed by increases in unemployment. The real GDP data for the last two quarters of 2008 was negative, followed by significant increases in unemployment - month to month. Unfortunately, 2009 Q1 real GDP data is not yet available. When the real GDP data for 2009 Q1 is first announced in early May, you will most likely see a big drop in real GDP growth (negative) for Q1, a drop that actually preceded the recent big increases in unemployment. The comparison is complicated by the fact that GDP data is only announced by quarter.

To better see this relationship, look at Figure 2 and Figure 3. Figure 2 shows the rates of growth of real GDP in recent years. Compare it to Figure 3, illustrating monthly unemployment rates over several years. Both GDP growth and employment data are considered in the determination of business cycles and recessions. Both the GDP and unemployment data show cycles of growth and decline. Of course, the two rates have an inverse relationship. Generally, as the economy slows (smaller or negative GDP growth), unemployment increases.

 

Unemployment Figure 2


Unemployment Figure 3

Real GDP Growth and Monetary Policy

Take a look at the data for real GDP growth and the federal funds rate targets for 1999 to the present (Table 2). As the most commonly used monetary policy tool, open market operations, the fed funds rate target is used to manipulate the money supply to either stimulate or contract the economy. In the early 2000s, the fed funds target was typically increased as the economy grew, and inflationary pressures increased, the fed funds rate was increased. In times of economic contraction, the rate was lowered to stimulate employment and output. In the most recent Federal Open Market Committee meetings, the rate has been kept at a historically low level of 0-1/4 percent. Further rate decreases are not a viable option at this time, so the Fed has taken other actions to increase liquidity and support the banking system. Monetary policies tend to follow the same flows as the business cycles - using contractionary policies (increasing interest rates) in times of rapid growth and inflationary pressure, and stimulatory policies (decreasing increasing rates) during slowdowns. Figure 4 shows the level of the federal funds rate target in recent years. Compare it to the changes in real GDP and unemployment to see their general relationship.

Unemployment Figure 4

What About Prices?

In it's March 28, 2009 press release on monetary policy, the Federal Open Market Committee (FOMC) made this statement about the prospects for inflation. "In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term."

The Federal Reserve is not now concerned with inflation, despite the many efforts that have been made to stimulate growth - stimulus often comes with some inflationary pressures. The last sentence of the Fed's statement indicates that there is still some concern that prices may be too low. Recently, some economists and business leaders have warned against the negative effects of deflation - a persistent decrease in the general price level. The BLS reports on the consumer price index in the past two months have indicated that we are not experiencing deflation but that the price level is stagnant. Energy prices are the "wild card." When energy prices increase, producer input costs increase and investment may suffer. If energy prices remain somewhat stable, investment decisions may be easier. 

Buiness investment is critical for job creation. Although interest rates are low and inflation is not on the near-term horizon, future expectations of consumer demand and tough credit conditions have kept private investment slow. Deflation also inhibits investment. Businesses may be less likely to invest if they perceive that their product prices are decreasinng.

A Last Note About Comparing Economic Data

Although this analysis has made comment about the relationships of various economic indicators, there are obviously many variables that impact output, employment, etc., independent of their "general" relationships. For instance, we have had periods of substantial growth that have not been accompanied by similar increases in employment - when the increase in output has been more the result of improvements in productivity. 

It is worthwhile to compare and contrast various economic data to identify current trends in the economy and, hopefully, to be better able to predict future conditions.

CONCLUSION

A recession is defined by the National Bureau of Economic Research (NBER) as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough."

The NBER "Business Cycle Dating Committee" declared in December 2008 that the current recession had begun in December 2008. The committee agreed that contradictions such as GDP, employment, and income for the past year had deteriorated enough to declare a recession. The data discussed in this "Focus on Economic Data" lesson seem to confirm that the recession has continued and deepened.

What do you think?

ASSESSMENT ACTIVITY

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


Essay Question:
 

 

  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.]