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Back to Subjects - Economics

unemployment

unemployment The unemployment rate is the percentage of the US labor force that is unemployed. It is calculated by dividing the number of unemployed individuals by the sum of the number of people unemployed and employed. An individual is counted as unemployed if they are over the age of 16 and actively looking for a job, but cannot find one. Students, who choose not to work, and retirees, are not counted in the unemployment rate. Total civilian population 211,171,000 (Excluding those under 16, members of the military, and persons in institutions) - Not in Labor force 69,304,000 (Retired, students, individuals choosing not to work) = Labor force 141,868,000 (Total population minus those not in labor force) - Employed 135,780,000 (Individuals with jobs) = Unemployed 6,088,000 (Individuals without a job and actively searching) The unemployment rate for the month of March 2001 was 4.3 percent, a tenth of a point increase from the January and February 2001 rate of 4.2%. The number of individuals employed decreased by 86,000. An unemployment rate of 4.3 percent for March 2001 is the highest unemployment rate since July 1999, but only slightly higher than the 3.9 to 4.1 percent range from October 1999 to the end of 2000. Prior to that, the unemployment rate had been in a steady decline since shortly after the last recession in 1990-1991. The average monthly increase in employment was approximately 155,000 in 2000 and 220,000 in 1999. For almost ten years, unemployment has fallen and the number of employed persons has increased by more than 15 million. In March 2001, the number of jobs decreased by 86,000, the largest monthly decrease since 1991. Job losses were most prominent in the manufacturing sector (81,000 jobs), but there were also losses in the retail trade sector (46,000 jobs). These losses were partially offset by employment increases experienced in the construction and finance sectors. Growth in employment in 2000 was 1.9 million; in 1999, the increase in employment equaled 2.8 million. For most of 2000, unemployment remained between 3.9 and 4.1 percent of the labor force. In the first three-quarters of 2000, the numbers of individuals in the labor force were increasing at a rate that many observers said could not be sustained without considerable inflationary pressures. The growth in the labor force depends upon the growth of the working age population and increases in the percentage of that group willing to work. Projections are that the size of the group will continue to grow slightly more than one percent a year and that the percentage working will not increase significantly. Under those conditions, the sustainable monthly growth in jobs is about 155,000. The last three months of 2000 have shown growth in the labor force that is less than that sustainable growth rate. Newspapers and magazines are writing about the slowing growth in the U.S. economy. References are pointing to the slowing growth in spending which is resulting in cutbacks in production and in some cases employment. The result of that slowing growth is this month's increase in the unemployment rate and decrease in employment. In May of 1999, the Federal Reserve began a policy of slowing the rate of growth in the money supply and creating increases in short-term interest rates. That policy lasted through November of 2000. The goal was to slow the rate of growth in spending in the economy to be more in line with the growth in capacity. That policy has surely had an affect and evidence of that are beginning to appear in a slower growth in real gross domestic products (GDP) in the last quarter of 2000, a rise in unemployment from October through February, and the slowing increase in the number of jobs. Inflation is a sustained increase in the overall level of prices. The most widely reported measurement of inflation is the consumer price index (CPI). The CPI measures the cost of a fixed basket of goods relative to the cost of that same basket of goods in a base year. Changes in the price of this basket of goods approximate changes in the overall level of prices. The seasonally adjusted consumer price index in March was 176.3. The price index was equal to 100 during the period from 1982 to 1984. The interpretation is that prices in market basket of goods purchased by the typical consumer increased from the 1982-1984 period to March 2001 by 76.3 percent. Inflation is usually reported in newspapers and television news a percentage change in the CPI on a monthly basis. For example: Month Price Level Monthly Inflation Rate Annual Inflation Rate February 176.2 176.3 - 176.2 176.2 = 0.0006 or .1% 1.000612 = 1.007 or 0.7% The seasonally adjusted rate of increase in the consumer price index during the month of March 2001 was .1 percent or one-tenth of one percent. The rate of increase in the consumer price index over the last twelve months was 2.9 percent. This month's increase is the smallest since August of last year. The slower rate of increase in inflation during March was primarily due to a decrease in the pricing for natural gas, energy, tobacco and transportation as well as smaller increases in the pricing for medical care and apparel. The rate of inflation has been quite volatile from month-to-month during 1999 and 2000. During October, November and December, prices increased at an annual rate of 2.1 percent, slightly lower than earlier in the year. In the first quarter of 2001, the annual rate of inflation was 4.0 percent. As shown in the graphs below, inflation has increased slightly since 1998, but had been slowing during the last part of 2000. If inflation is considered by quarters during 2000, the annual rates of increase were 6.1, 2.6, 2.8, and 2.1 percent. Compared to the rates of inflation in the 1970s, much of the 1980s, and even the early 1990s, the current rate of inflation is quite low. The increased volatility is primary due to fluctuations in the prices of oil and food. The core rate of inflation represents the consumer price index without the influences of changes in prices of food and oil is often featured in news reports. The core rate this month is less because of decreases in petroleum-based energy costs. Last month, the Federal Reserve met and lowered the target federal funds rate by one-half of a percentage point. The "beige book" (summarizing the economic conditions in each of the Federal Reserve districts) issued prior to that meeting discussed higher energy prices. But most of the observations were that upward pressures on prices were easing. On April 18, the Federal Reserve announced another reduction in the target federal funds rate by one-half of a percentage point to 4 1/2 percent. The reduction was announced between formal meetings of the Open Market Committee and was described in the press as a surprise announcement. The Federal Reserve is concerned with continued slowing in the growth of spending with the result being either a serious slowing of growth or an actual recession. The announcement does not mention concern with potential inflationary pressures. In fact, just the opposite is described as a continuing concern. The GDP price index (sometimes referred to as the implicit price deflator) is an index of prices of all goods and services included in the gross domestic product. Thus the index is a measure of prices that is broader than the consumer price index. The producer price index measures prices at the wholesale or producer level. It can act as a leading indicator of inflation. If the prices producers are charging are increasing, it is likely that consumers will eventually be faced with higher prices. Real Gross Domestic Product during the fourth quarter of 2000 increased at an annual rate of 1.1 percent. This is a "preliminary" estimate for fourth quarter and is based on incomplete information; a final revision will be released in March. This estimate is a slight revision of the announcement released one month ago. During the previous three quarters of 2000, real GDP increased at annual rates of 4.8, 5.6, and 2.2 percent. From 1999 to 2000, real GDP increased by 5.0 percent, compared to an annual increase of 4.2 percent from 1998 to 1999. Growth in real GDP over the last few years has been increasing and is relatively high when compared to recent periods. However, the rate of increase in real GDP during the last year has been slowing quickly, particularly during these last two quarters of 2000. The growth rate in real GDP during the fourth quarter is the lowest since the second quarter of 1995 and is perhaps one more signal that the Federal Reserve's efforts in the last year and a half to slow the rate of increase in spending in the economy have had significant effects. From June 1999 to early January of this year, the Federal Reserve used its monetary policy to increase interest rates in order to prevent inflationary pressures. The slowing growth in real GDP has contributed to the news reports of increasing concern with the possibility of a recession, that is, an actual decrease in production. The last recession began in July of 1990 and continued through March of 1991. The Federal Reserve responded in January of 2001 with two reductions in the target federal funds rate. The GDP deflator (the price index representing all goods and services in GDP) increased at an annual rate of 1.8 percent in the fourth quarter, compared to 2.0 in the third quarter of 2000. For all of 2000, the price index increased 2.4 percent, compared to a 1.6 percent increase during all of 1999. The rate of increase in real GDP has been higher in the last several years than in the first part of the 1990s and much of the 1970s and 1980s. Economic growth, as measured by average annual changes in real GDP, was 4.4 percent in the 1960s. Average rates of growth decreased during the 1970s (3.3%), the 1980s (3.0%), and the first half of the 1990s (2.2%). In the last five years of the 1990s, the rate of growth in real GDP increased to 3.9, with the last three years being over 4.3 percent per year. A five percent increase from 1999 to 2000 is the highest level of yearly increase since 1984. The recent upward trend (until the last two quarters) in economic growth has been accompanied by increases in the rates of growth of consumption spending, investment spending and exports. Productivity increases; decreases in unemployment, expansion in the labor force, and increases in the amount of capital have allowed real GDP to grow at faster rates. Yet during this same time period, consumers have reduced their savings. After reviewing the unemployment, inflation and the GDP history of the last decade it is obvious why the United States economy has been ranked number one in the world. The economy has averaged a 5% or less unemployment rate, a 3.5% or less inflation rate and a GDP rate that has fluctuated from 2.2% to 5% throughout the nineties. The future outlook of the next decade is promising, however, many economists are skeptical when asked if this trend can continue at its current rate. Bibliography:

Word Count: 1906