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Unemployment As A Factor Of Macroeconomic Development

|Includes: Bankrate Inc. (RATE)

The US Census Bureau conducts 2 monthly surveys. The first is a household survey which collects data from 60,000 households regarding age, employment status and other indexes of employment with the most famous index being the Unemployment rate. The second survey conducted is the establishment survey with Nonfarm payrolls being its most known index. This index reports the number of non-agricultural business employees on the payroll of a company. The result of these surveys and the collected data is called the Employment Report and is issued by the Bureau of Labor Statistics (BLS) on the first Friday after the end of the month.

To estimate the Unemployment rate, the population is initially divided into two groups: people of productive age (16 years and older, who are not kept in "specialized" institutions) and those of unemployable age.

In turn, the population of productive age is divided into two groups: Labor force and Non-labor force. The number of people constituting the labor force is the indicator of the desire to work of the people of the productive age.

The Labor force population is divided into employed and unemployed and serves as basis for estimating the unemployment rate.

A discouraged worker is a person of productive age, able to work but not hasn't been looking for a job during the previous 4 weeks. Such people are often temporarily not accounted for as part of the labor force during recessions, though formally are not considered unemployed and returning during expansion actively looking for a job.

Below are the three main indicators, as estimated by the US Census Bureau:

· Unemployment rate = the number of the unemployed according to the above described method / Labor force

· Labor force participation rate = Labor force / number of productive age people

· The share of the employed among the total of economically active population is not widely used in the macroeconomic analysis.

As mentioned above, during recessions, many jobless people stop looking for a job therefore they fall into the category of productive age people but are no longer part of the labor force accounted for in the Unemployment rate estimation. Formally such people are not considered unemployed, this is why the published unemployment rate is understated and biased. During the economic extension these people return to searching for work and become part of the Labor force once again, i.e. the Unemployment rate may actually continue to increase during the extension period.

An employed person is considered the one having full or part-time employment. To be considered unemployed, a person should be available for work and fall into one of the following categories:

· Waiting to start a new job within 30 days;

· Waiting to be restored at the job he had been fired from; or

· Not working but making efforts to find a new job during the previous 4 weeks.

Speaking of long-term trends: from the 1960's to the 2000's the Labor force Participation rate enjoyed an uprising trend, primarily due to a high percentage of women involved into the work process (the index grew 38% to 60% for women). The Labor force Participation rate for men has had a downward trend (83% to 75%). The average Unemployment rate is 5.9%.

The first graph shows the Unemployment rate and the Labor Force Participation rate since 2001. The Labor Participation rate has changed to a downward trend - the main reasons being aging of the population and the economic crises of 2001 and 2008. The Labor Force Participation rate decreased from 66% to 64% since July 2008. The November 2011 results showed that the Unemployment Rate decreased to 8.6% compared to 9% in October. But this as well as the general Unemployment Rate decreased overall from 10% in 2009 is due not only to employment growth but also due to the Labor Force Participation rate fall. If a person is not looking for a job for the previous 4 weeks he is not part of the Labor force anymore and thus is not accounted for as an unemployed for the Unemployment Rate estimation. Prolonging the terms of unemployment benefits does not stimulate active job search among the population.

In the second graph we see the actual number of people representing the Labor force, which accounts for 155M people and decreases after 2008. However, the population continues to grow in the US. During the expansion periods, a monthly increase of 150,000 persons in non-agricultural work places is acceptable. During early stages of recovery after recession the necessary monthly increase should have been 250,000 non-agricultural work places. Today, such numbers cannot be observed.

From the Weeks Unemployed graph it is clear that the number of the unemployed actively looking for a job for over 27 weeks exceeds the pre-crisis level of 5M people, while the number of the unemployed looking for a job for over 15 weeks exceeds the pre-crisis level of 6M people, i.e. the job situation is still tough. At the same time, the median number of weeks spent for job hunting suggests stabilization of some sort which proven by the weekly breakdown graphs.

Private companies publish their unemployment data prior to the official Unemployment Report. Many market participants consider this data as a basis to predict the official Unemployment Report results. The Automatic Data Processing (NASDAQ:ADP) report may be regarded as a starting point for prediction of the number of employed in the non-agricultural sector. The Challenger Job-Cut Report is the leading indicator for the number of unemployment benefits applications and is a recurring index published weekly on Thursdays. 400,000 first-time unemployment benefits applications are considered a threshold number. If the number is lower than the mentioned number, combined with other unemployment data, may stand for the fact that the Economy is generating sufficient work places for a post-recession growth. Today, this index is at its threshold. Monster Employment Index published online shows the dynamics of the Labor force demand from companies.

The employment indexes can be useful for the analysis of an Industries' condition. The employment dynamics in a certain industries may stand as a leading indicator of future sales. Businesses start to hire when there is confidence in the future. At the same time, one should allow a correction due to the development of automation process. The graphs below shows employment dynamics in some US industries, the growth dynamics in construction is especially important.

The US Unemployment Rate is one of the most important indexes to consider while analyzing current and future consumption in a country where 70% of the economy is formed due to private consumption, which we will discuss later. Currently, we consider that unemployment in the US will not have reached its pre-crisis level before the second half of 2014.

This article contains the opinions of the author which is subject to change without notice. All materials presented are compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This article is distributed for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.

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