This lesson examines the January 8, 2009, U.S. Department of Labor, Bureau of Labor Statistics, announcement of employment data and the unemployment rate for the month of December, 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.
- 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 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 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 is about the BLS January 8, 2010 announcement of the "Employment Situation" for the month of December 2009.
[NOTE: During the second half of the 2009-2010 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 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.
May: End of the school year review of employment daya and summary of the recent history of labor markets.]
BLS Employment Situation Release January 8, 2010: This page provides the Bureau of Labor Statistics' Unemployment Situation for December 2009.
Employment Situation Frequently Asked Questions: This BLS site provides answers to FAQ's about the employment situation press releasees.
BLS Current Population Survey: This site provides databases, tables and reports on labor force statistics.
Revision of Seasonally Adjusted Labor Force Series in 2008: This is a BLS article on seasonal data adjustments.
BLS Glossary: This glossary provides economics terms used by the BLS in their reports.
Unemployment Groups and Demographic Groups in June 2006: This site discusses unemployment by demographics.
Current Employment Statistics Highlights: This page identifies trends in key industry groups.
How the Government Measures Unemployment: This website explains the process taken by the U.S. Government to measure the unemployment rates.
Assessment Activity: This interactive quiz tests students' understanding of the Unemployment lesson.
Global Business Cycle Indicators: This site produced by The Conference Board, provides business cycle indicators for 11 countries around the world.
Duration of Unemployment Data: This BLS site provides data on the average duration of unemployment.
Key Economic Indicatorsas of January 8, 2010
On a seasonally adjusted basis, the U.S. CPI-U increased 0.4 percent in November after rising 0.3 percent in October. The index for all items less food and energy was unchanged in November after increasing 0.2 percent in October.
U.S. nonfarm payroll employment edged down (-85,000) in December, and the unemployment rate was unchanged at 10.0 percent. Employment fell in construction, manufacturing, and wholesale trade, while temporary help services and health care added jobs. The November estimate of employment was adjusted to indicate a gain of 4,000 in nonfarm employment.
U.S. real gross domestic product increased at an annual rate of 2.2 percent in the third quarter of 2009. In the second quarter, real GDP decreased 0.7 percent.
The FOMC will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
U.S. Department of Labor, Bureau of Labor Statistics
Released: January 8, 2010
“Nonfarm payroll employment edged down (-85,000) in December, and the unemployment rate was unchanged at 10.0 percent, the U.S. Bureau of Labor Statistics reported today. Employment fell in construction, manufacturing, and wholesale trade, while temporary help services and health care added jobs.”
After a small increase in the number of non-farm job losses in November 2009, December saw a rebound to another net job loss – though a far smaller loss than in any other month of 2009. Was November’s small gain an anomaly or a result of short-term stimulus? Is December’s negative estimate an anomaly or somehow not an accurate measurement within the trend toward job growth? Figure 1, below, shows the monthly non-farm payroll employment changes in 2009. Note the almost steady monthly decreases from the high of 741,000 lost jobs in January.
|Figure 1: Monthly Non-farm Payroll
Employment Changes in 2009
|Net total of U.S. non-farm jobs lost in 2009: 4,164,000|
* November and December employment data estimates are subject to revisions based on more timely or accurate data. For instance, the original November estimate of 11,000 jobs lost was revised to plus 4,000 jobs in this report. All data are subject to revision annually.
[Teacher Note: Ask students if they think the monthly decreases in job losses from the beginning to the end of 2009 is a sign that the recession is over? What about the recent increased from November to December? Caution the students that a change (good or bad) in one month should not be seen as a "trend."]
Figure 2, below, shows the U.S. unemployment rates for the years 1990 through 2009. Note the periods of high rates – 1992, 2003 and 2008-2009. The fluctuations – up and down – of the unemployment rate generally correlate to business cycles. The times of very high unemployment rates generally correlate with periods of recession.
The BLS “Employment Situation” estimates are derived from two sources.
The Household Survey
“The Current Population Survey (CPS) is a monthly survey of households conducted by the Bureau of Census for the Bureau of Labor Statistics. It provides a comprehensive body of data on the: labor force, employment, unemployment and persons not in the labor force.”
The CPS includes approximately 60,000 households in its survey sample, approximately 110,000 individuals. The sample is representative of the entire U.S. population, representing 2,025 geographic areas (sampling units, counties and cities). The Census Bureau selects a sample of 824 of these geographic areas to represent the states and the District of Columbia. One-fourth of the sample households are changed each month.
[Teacher Note: For a detailed explanation of CPS sampling methodology, see Chapter 1, of the BLS Handbook of Methods.]
Each month, Census Bureau workers interview people in the 60,000 sample households about their labor force activities (job-holding and job-seeking) or non-labor force status. The interviewers collect household information, including their personal characteristics (date of birth, sex, race, Hispanic ethnicity, marital status, educational attainment, veteran status, and so on) and their relationships to the person maintaining the household. Each person is classified according to the activities he or she engaged in during the reference week. Then, the total numbers are "weighted," or adjusted to take into account the age, sex, race, Hispanic ethnicity, and state of residence of the person.
“Each month the 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 non-farm payrolls.”
The primary data derived from the CES survey are monthly estimates of employment, hours, and earnings for the U.S., states, and major metropolitan areas. Preliminary national estimates are usually published on the first Friday of the following month, in conjunction with data from the Current Population Survey.
The survey collects data on hours and earnings for various worker groups. In service-providing industries, data are collected for non-supervisory workers, employees who are not owners or who are not primarily employed to direct, supervise, or plan the work of others. In goods-producing industries, data is collected for production workers in mining and logging, manufacturing, and construction.
Unemployment in December 2009 - Household Survey Data
The BLS release includes details about the number and demographics of the unemployed.
“In December, both the number of unemployed persons, at 15.3 million, and the unemployment rate, at 10.0 percent, were unchanged. At the start of the recession in December 2007, the number of unemployed persons was 7.7 million, and the unemployment rate was 5.0 percent.”
Unemployment Rates for Demographic Groups
“Unemployment rates for the major worker groups--adult men (10.2 percent), adult women (8.2 percent), teenagers (27.1 percent), whites (9.0 percent), blacks (16.2 percent), and Hispanics (12.9 percent)--showed little change in December. The unemployment rate for Asians was 8.4 percent, not seasonally adjusted.” Figure 3, below, shows U.S. non-farm employment and unemployment rates for various demographic groups from October to December, 2009. Note that 843,000 people became classified as “not in the labor force” in December. Apparently many had given up or for other reasons were not working or seeking employment. Also note the extremely high, and persistently high, unemployment rate for young workers – over 27 percent.
|Employment (1000s)||October||November||December||Nov - Dec
|Civilian labor force||153,854||153,720||153,059||-661|
|Not in labor force||82,696||83,022||83,865||843|
|Unemployment Rates (%)||October||November||December||Nov - Dec
|Hispanic or Latino ethnicity||13.1||12.7||12.9||.2|
[Teacher Note: This is a good opportunity to talk about why the unemployment rates for different groups are so different. Think about skills and education levels, regional differences, specific industries (ie., manufacturing), etc. A 2006 BLS report examined this phenomenon, “Unemployment rates and demographic groups in June 2006
Revisions of Previous Employment Data
All data are subject to revisions for the two following months. In addition, the data for the January through November is revised in the following January report. “The change in total non-farm payroll employment for October was revised from -111,000 to -127,000, and the change for November was revised from -11,000 to +4,000.” Figure 4, below, shows the reported and year-end revisions of the monthly unemployment rates (seasonally adjusted) from January to December, 2009. The original 2009 estimates were revised slightly in just 4 months during the year.
January - February 2009 & End of Year Projections
|* At the end of each calendar year, BLS routinely updates the seasonal adjustment factors for the labor force series derived from the Current Population Survey (CPS), or household survey. As a result of this process, seasonally adjusted data for January 2005 through November 2009 were subject to revision.|
BLS report: “Among the unemployed, the number of long-term unemployed (those jobless for 27 weeks and over) continued to trend up, reaching 6.1 million. In December, 4 in 10 unemployed workers were jobless for 27 weeks or longer.”
The labor force includes all persons classified by the BLS as employed or unemployed. The employment-population ratio is the proportion of the civilian non-institutional population aged 16 years and over that is employed.
BLS report: “The civilian labor force participation rate fell to 64.6 percent in December. The employment-population ratio declined to 58.2 percent.”
Workers are considered to be full time if they work 5 hours or more per week. Those working 1 to 34 hours per week are classified as part-time.
BLS report: “The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was about unchanged at 9.2 million in December and has been relatively flat since March. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.”
Marginally Attached Workers
Marginally attached workers are persons “not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months (or since the end of their last job if they held one within the past 12 months), but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Discouraged workers are a subset of the marginally attached.”
BLS report: “About 2.5 million persons were marginally attached to the labor force in December, an increase of 578,000 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.”
BLS report: “Among the marginally attached, there were 929,000 discouraged workers in December, up from 642,000 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 1.6 million persons marginally attached to the labor force had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities.”
[Teacher Note: If the numbers of marginally attached and discouraged workers is so high, are the estimates of “unemployment” accurate? Yes – by the BLS definition of “unemployment.” If you consider those who have “given-up” or are involuntarily working part-time, the answer may be no.]
What is the “Real” Unemployment Rate?
Many economists estimate that, including the technically defined unemployed and those not employed, but actually wanting to work, the “real unemployment rate” is between 17 and 20 percent. In some urban cores, real unemployment for young workers may be as high as 50 percent. For many blog and media comments on the meaning and level of “real unemployment,” simple do an Internet search for the term “real unemployment.”
Non-Farm Employment – Establishment Survey Data
BLS report: Total non-farm payroll employment edged down in December (-85,000). Job losses continued in construction, manufacturing, and wholesale trade, while temporary help services and health care continued to add jobs. During 2009, monthly job losses moderated substantially. Employment losses in the first quarter of 2009 averaged 691,000 per month, compared with an average loss of 69,000 per month in the fourth quarter.”
- “Construction employment declined by 53,000 in December, with job losses throughout the industry. Employment in construction has fallen by 1.6 million since the recession began.”
- “In December, employment in manufacturing decreased by 27,000. The average monthly decline for the last 6 months of 2009 (-41,000) was much lower than the average monthly decline for the first half of the year (-171,000). Since the recession began, manufacturing employment has fallen by 2.1 million; three-fourths of this drop occurred in the durable goods component (-1.6 million).”
- “Wholesale trade employment declined by 18,000 in December, with the majority of the decline occurring among durable goods wholesalers. Employment in retail trade was little changed over the month, although general merchandise stores lost 15,000 jobs.”
- “Temporary help services added 47,000 jobs in December. Since reaching a low point in July, temporary help services employment has risen by 166,000.”
- “Health care employment continued to increase in December (22,000), with notable gains in offices of physicians (9,000) and home health care services (8,000). The health care industry has added 631,000 jobs since the recession began.”
December 2009 Workweek
BLS report: “In December, the average workweek for production and non-supervisory workers on private non-farm payrolls was unchanged at 33.2 hours. The manufacturing workweek, at 40.4 hours, and factory overtime, at 3.4 hours, were unchanged over the month. Since May, the manufacturing workweek has increased by 1.0 hour.”
December 2009 Hourly Earnings
BLS report: “In December, average hourly earnings of production and non-supervisory workers on private non-farm payrolls rose by 3 cents, or 0.2 percent, to $18.80. Over the past 12 months, average hourly earnings have risen by 2.2 percent, while average weekly earnings have risen by 1.9 percent.”
What Do the BLS Employment and Unemployment Numbers Mean?
Employment: Each month the Current Employment Statistics (CES) 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.
[Teacher Note: The BLS publishes a monthly "Current Employment Statistics Highlights ." This report identifies trends in key industry groups.]
A person is considered by the BLS to be employed if…
They are 16 years and over in the civilian non-institutional population, who…
- Did any work at all (at least 1 hour) as a paid employee.
- Worked in their own business, profession, or on their own farm.
- Worked 15 hours or more as unpaid workers in an enterprise operated by a member of the family
- Were not working but who had jobs or businesses from which they were temporarily absent because of" a variety of reasons
Unemployment: BLS conducts a monthly household survey, providing comprehensive information on the employment and unemployment of the population classified by age, sex, race, and other characteristics." An online BLS publication outlines, "How the Government Measures Unemployment ."
In BLS employment and unemployment data, there are basically three categories that all people, age sixteen and over fall into:
- People with jobs are employed.
- People who are jobless, looking for jobs, and available for work are unemployed.
- People who are neither employed nor unemployed are not in the labor force.
The Unemployment Rate
The nation’s unemployment rate is the number unemployed as a percentage of the labor force. The labor force includes those age 16 and over who are employed and unemployed. The December unemployment rate is 10.0 percent, with 15,267,000 unemployed, from a labor force of 153,059,000 (rounded to 10%).
Types of Unemployment
There are generally three types of unemployment typically identified by economists, 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. Much of the increase in unemployment in 2008 was cyclical as a result of the economic downturn and recession.
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.
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 2008-November 2008 were subject to revision. For example, the unemployment rate in November 2008 was originally reported at 6.7 percent and revised to 6.8 percent by the time of the January 9 announcement.
For a more full explanation of the seasonal adjustment process, see the BLS article Revision of Seasonally Adjusted Labor Force Series in 2008
Employment and Unemployment – Some Basic Concepts
[Teacher Note: The student version of the lesson asks students to go online to the BLS website "glossary" to learn the definitions of the key BLS "employment report" terms. If they are not able to go online, provide them with the following definitions.]
- Labor Force: "The labor force includes all persons classified as employed or unemployed in accordance with the definitions contained in this glossary."
- Civilian Noninstitutional Population: "Included are persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces."
- Employed Persons: "Persons 16 years and over in the civilian non-institutional population who, during the reference week, (a) did any work at all (at least 1 hour) as paid employees; worked in their own business, profession, or on their own farm, or worked 15 hours or more as unpaid workers in an enterprise operated by a member of the family; and (b) all those who were not working but who had jobs or businesses from which they were temporarily absent because of" a variety of reasons."
- Unemployed Persons: "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."
- Not in the Labor Force: "Includes persons aged 16 years and older in the civilian non-institutional population who are neither employed nor unemployed in accordance with the definitions contained in this glossary. Information is collected on their desire for and availability for work, job search activity in the prior year, and reasons for not currently searching."
- Duration of Unemployment: "The length of time in weeks (through the current reference week) that persons classified as unemployed had been looking for work. For persons on layoff who are counted as unemployed, duration of unemployment represents the number of full weeks they had been on layoff. The data do not represent completed spells of unemployment."
- Full-time Workers: "Persons who work 35 hours or more per week."
- Hours Worked: "There are two different hours concepts measured in the CPS: usual hours and actual hours at work. Usual hours refer to a person’s normal work schedule versus their actual hours at work during the survey reference week. For example, a person who normally works 40 hours per week, but was off for a 1-day holiday during the reference week, would report his or her usual hours as 40 but actual hours at work for the reference week as 32."
- Contingent Workers: "Workers who do not have an implicit or explicit contract for long-term employment. BLS uses three alternative measures of contingent workers that vary in scope."
- Marginally Attached Workers: "Persons not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months (or since the end of their last job if they held one within the past 12 months), but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Discouraged workers are a subset of the marginally attached."
- Discouraged Workers: "Persons not in the labor force who want and are available for a job and who have looked for work sometime in the past 12 months (or since the end of their last job if they held one within the past 12 months), but who are not currently looking because they believe there are no jobs available or there are none for which they would qualify."
- Self-employed Persons: "Those persons who work for profit or fees in their own business, profession, trade, or farm. Only the unincorporated self-employed are included in the self-employed category."
- Job Leavers: "Unemployed persons who quit or otherwise terminated their employment voluntarily and immediately began looking for work."
- Job Losers: "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. (See Unemployed persons.) Those not on temporary layoff include permanent job losers and persons whose temporary jobs had ended."
- Seasonally Adjusted: "Seasonal adjustment removes the effects of events that follow a more or less regular pattern each year. These adjustments make it easier to observe the cyclical and other nonseasonal movements in a data series."
- Supply of Workers: Often refers to the labor force. The concept focuses on worker characteristics, especially their education and training, but also characteristics such as experience (often considered to be correlated with age), physical strength (often considered to be inversely correlated with age), ability to work in teams, etc."
- Wages and Salaries: "Hourly straight-time wage rate or, for workers not paid on an hourly basis, straight-time earnings divided by the corresponding hours. Straight-time wage and salary rates are total earnings before payroll deductions, excluding premium pay for overtime and for work on weekends and holidays, shift differentials, and non-production bonuses such as lump-sum payments provided in lieu of wage increases."
- Weekly Hours: "The expected or actual period of employment for the week, usually expressed in number of hours. Some uses of the term may relate to the outside dimensions of a week (for example, 7 consecutive days)."
Want more information about employment and unemployment data?
The BLS web page has a link to Employment Situation Frequently Asked Questions (FAQs). Go to this page for more information.
SHORT ANSWER ESSAY QUESTIONS:
1. How is the unemployment rate determined?
[The number of unemployed persons divided by the labor force expressed as a percentage equals the unemployment rate.]
2. What is a "marginally attached" worker?
[Marginally attached workers are persons “not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months (or since the end of their last job if they held one within the past 12 months), but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Discouraged workers are a subset of the marginally attached.]
The January 8, 2010, "Employment Situation" report estimated that the U.S. economy lost an additional 85,000 jobs in Decemberbs in November. This news surprised most economists and planners who expected a much more positive report. Any unemployment rate less than 10 percent would have been greeted as very good news about the health of the economy and would have naturally followed better GDP growth peformance reported for the previous quarter. Employment increases typically lag real GDP growth
The BLS also reported that employment declined in "construction, manufacturing, and wholesale trade," typical of the recession trend. Health care added jobs - also consistent withut the trends of the past year. The number of workers in "temporary help services" also increased, a possible sign that employers may want to hire, but are cautious.about creating higher cost permanent jobs.
High unemployment continues to be a drag on the U.S. economy and a sign of continued weakness. Lower national, state and local government revenues from income and employment taxes continue to put pressure on budgets. Consumer spending, reduced by lower employment, continues to be slow. Watch for signs of continued slowness and high unemployment - bad news - or a turn-around in employment and growth - good news in 2010.
What do the levels of employment and unemployment tell us about the current, future and past states of the economy? Leading, Concurrent and Lagging Economic Indicators.
The level of employment (non-agricultural payroll employment) most often seen as a coincident indicator of economic activity. This means that it indicates the current trend and will increase or decrease directly and at the same time with current state of the economy (other measures of current economic activity). It is included as one of four measures in the Conference Board’s “Coincident Economic Index.”
(Teacher note: For a more detailed explanation of the Conference Board’s economic indicator indexes, go to Global Business Cycle Indicators .)
The Conference Board’s “Leading Economic Index” uses ten economic measurements, including “average weekly hours worked by manufacturing workers” and “average number of initial applications for unemployment insurance.” It makes sense that the earliest sign of problems in employment might be a reduction in average work hours as employers cut back hours or reduce overtime, rather than lay-off workers. An increase in initial unemployment claims then is the first sign of actual job losses. This is then followed by a change in the level of payroll employment (a coincident indicator) and, most likely, a change in the unemployment rate (assuming all other factors are constant.) The coincident indicators more clearly show the current trend.
The Conference Board’s “Lagging Economic Index” includes “the average duration of unemployment.” This would naturally follow the level of employment and confirm the earlier signs of labor market problems. As economic conditions worsen, the duration of unemployment will tend to increase. Between December 2008 and December 2009, the average duration of unemployment increased from 19.5 weeks to 29.1 weeks. 39.8 percent of the unemployed in December 2009 had been unemployed for at least 27 weeks.
[Teacher note: For Bureau of Labor Statistics data on the Duration of Unemployment
, which is Table A12 of the BLS news release.]
What do you think are the other eight indicators of future economic problems (leading indicators)?
Make your own list of indicators of future problems in employment, output or price level? What do the indicators you have identified tell us about the future of the economy? After you have completed your list, compare it to the Conference Board’s list of the ten components of the “Leading Economic Index.” Go to Global Business Cycle Indicators .