Indicator 4 – Employment Statistics

18 Aug

As we enter the final months of the 2012 Presidential election season, a lot of the political rhetoric will focus on the employment statistics – more specifically, on the unemployment rate.  Why?  Because unemployment it is an emotional issue for most citizens; and citizens vote with their emotions.

“Recession is when your neighbor loses his job. Depression is when you lose yours. And recovery is when Jimmy Carter loses his.” – Ronald Reagan.  Use of this quote should not be construed as an endorsement of any political party.

Current Employment Statistics (CES) provides comprehensive data on national employment, unemployment, and wages and earnings data across all non-agriculture industries, including all civilian government workers.  The employment data is based on a survey of 300,000 establishments across 600 industries, which account for approximately one-third of all payroll employees.  Industries include retail trade, manufacturing and construction.  CES provides details on numbers of hours worked and earnings of all surveyed across the nation.

The “employed” are defined as all full- and part-time workers and temporary and intermittent employees who received pay for the cited period.  It includes those on paid vacation or sick leave, and excludes business proprietors, self-employed, unpaid family members and volunteers.  Topic for further research – has the higher than average unemployment rate over the past 3-4 years been offset by an increase in self-employment?

Breakdown of Employment Statistics:

Full employment describes a labor market where the number of job seekers and job openings matches up very tightly.  It DOES NOT mean there is  zero unemployment; even in the very best of times there will be “frictional” unemployment, as people move around between jobs, or take some time trying to upgrade to a better job.

Economists define full employment as the lowest unemployment rate consistent with stable inflation.  Right now, according to the Congressional Budget Office, that corresponds to a jobless rate of 5.5%.

Recent Statistics:

Unemployment in the United States reached 10.0% at its highest peak in October 2009 when more than 3 million jobs were lost.  Since then, economy has added more than 4.1 million jobs – dropping down as low as 8.2% as of March 2012. However, the unemployment rate only measures those who are currently looking for work, a separate number called the “U-6” provides a more complete measure – in July 2012, the “U-6” rate was 15%.

Economists focus on the monthly change in total non-farm payrolls and in which sectors jobs were gained or lost.  Interesting trends can also be derived from the payroll data, such as the average number of hours per week worked and the average hourly earnings. This data gives an indication of how tight the labor market is – tight labor markets can translate into wage inflation.

Investors study the labor report to look for trends in disposable income, wage inflation and employment statistics, many studying industries of personal interest to them.  Analysts will usually conclude that if payrolls are increasing and wages are rising, then personal consumption statistics like retail sales will advance as well, as more money will be in the pockets of consumers.  As a result, the major markets react to employment numbers.

A weaker-than-expected June 2012 jobs report dominated investors’ attention in early July, pushing all three major U.S. stock indexes down more than 1%.  The Bureau of Labor Statistics jobs report, which showed that the economy added just 80,000 jobs in June, came in below expectations and pointed to signs of a deceleration in employment growth.   The Dow Jones Industrial Average closed down 124 points, or 1%, the S&P 500 fell 13 points, or 0.9%, and the NASDAQ shed 39 points, or 1.3%.

Then in July 2012, the economy added 163,000 jobs – the unemployment rate stayed essentially unchanged, even nudging up slightly from 8.2 percent to 8.3 percent (actually, if you want to get technical, it went from 8.22 percent to 8.25 percent).  Consequently, the Dow Jones Industrial Average added 217 points (1.7%) to 13,044, the S&P 500 rose 18 points (2%) to 1,383, and the NASDAQ rose 37 (2%) points to 2,946.

Conclusions:

As with all the economic indicators we have examined (or will examine in future posts) Employment Statistics are subject to interpretation.  While the economy has added more jobs between 2009 and 2012 than were lost during the economic collapse of 2008-2009, unemployment remains well above the pre-recession average.  The job market may appear to be improving, but the overall economy remains fragile.  Question: What defines an “ideal” economy?

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