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Duration: 4:50

Level: Beginner

The Unemployment Rate lesson discusses where to find it, how to forecast it, how it’s influenced, and how it influences financial markets and the economy. The unemployment rate is one of the oldest economic indicators available and useful in analyzing the relative ease or difficulty in finding a job.

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Study Notes:

Jobs Day is the most important day of the month on the economic calendar and is generally on the first Friday of each month. The unemployment rate is released on Jobs Day and represents the share of the labor force that is unemployed but is actively looking for work. The rate of unemployment is defined as the number of unemployed folks divided by the labor force. The report provides details on the unemployment rate by many segments. Segments include industry, gender, age, race, educational attainment, and others.

The unemployment rate survey is conducted by the U.S. Census Bureau for the U.S. Bureau of Labor Statistics by collecting data from roughly 60,000 randomly sampled households. Data from households that don’t respond are estimated. The seasonally adjusted numbers are released within the Employment Situation press release during pre-market hours at 8:30am eastern time. More detailed data from individual states are generally released a few weeks after national data. The BLS measures labor market activity, working conditions, price changes, and productivity in the U.S. economy to support public and private decision making.

The report is published because the unemployment rate is an indicator of the economy’s productivity and provides critical information concerning the relative ease or difficulty in finding a job. A low unemployment rate would show confidence among workers that they can find jobs easily. Elevated unemployment would signal that workers are having difficulty finding work. Falls in employment and production lead to domino effects across the global economy. If workers can’t find jobs, they are no longer spending as much at other businesses, harming revenues and risking layoffs across global economies. When the U.S. economy weakens, the global economy generally weakens as well as the global economy is interconnected, and the U.S. makes up a quarter of it. Global markets care a lot about the strength of the U.S. labor market.

To forecast the unemployment rate, we can look at economic indicators such as the hours worked in the economy because businesses tend to cut hours before laying people off, weekly unemployment claims to see if layoffs are rising, the weekly Staffing Index from the American Staffing Association to see how hiring is doing at staffing companies, the monthly ADP employment report which leads the jobs report and the employment parts of the Purchasing Managers Index to get a gauge of how manufacturing employment is responding to order flows for high-cost durable goods. We’d also look at business survey data from the National Federation of Independent Businesses for hiring plans, businesses cutting hours, and business concerns. In addition, watching consumer confidence and retail sales to see if trends in business revenue are weakening and may lead to layoffs is useful.

Market participants value the amount of jobs added in the previous month more than the unemployment rate because it’s a more direct link to economic growth and productivity. Sometimes the unemployment rate may be misleading because of an aging population and/or discouraged workers that reduce the labor force, the denominator in the unemployment rate calculation. For example, the unemployment rate in December 2021 was three point nine percent, a similar level to the pre-pandemic level in February 2020; however, employees on payrolls were a whopping three point six million or two point three percent less during the same time period. In this case, the unemployment rate fails to display the “labor market recession” in the U.S. economy due to record labor force exits in a pandemic era occurrence labeled “The Great Resignation”.

Tracking the unemployment rate to gauge the tightness of the U.S. labor market is important as it correlates with global economic strength.


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