To better understand the lesson that can be learned from this report, specific terms from the Bureau of Labor Statistics are below. It is important to read them carefully and use them as a reference when reading the rest of this. Not all the terms from the relevant surveys that the Employment Situation Report uses each month are included below. The definitions are quoted word-for-word as they are published on the Bureau of Labor Statistics website.
Civilian noninstitutional population (Current Population Survey) -
Included are persons 16 years of age and older residing in the 50 states and the District of Columbia who do not live in institutions (for example, correctional facilities, long-term care hospitals, and nursing homes) and who are not on active duty in the Armed Forces.
Civilian Labor force (Current Population Survey) -
The labor force includes all persons classified as employed or unemployed in accordance with the definitions contained in this glossary.
Participation rate -
The labor force as a percent of the civilian noninstitutional population.
Employed (Current Population Survey) -
Persons 16 years and over in the civilian noninstitutional 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 vacation, illness, bad weather, childcare problems, maternity or paternity leave, labor-management dispute, job training, or other family or personal reasons, whether or not they were paid for the time off or were seeking other jobs. Each employed person is counted only once, even if he or she holds more than one job. Excluded are persons whose only activity consisted of work around their own house (painting, repairing, or own home housework) or volunteer work for religious, charitable, and other organizations.
Employment-population ratio (Current Population Survey) -
The proportion of the civilian noninstitutional population aged 16 years and over that is employed.
Unemployed (Current Population Survey) -
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.
Unemployment rate -
The unemployment rate represents the number unemployed as a percent of the labor force.
Marginally attached workers (Current Population Survey) -
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.
It is important to understand that the household data is where the unemployment rate comes from. It is important to understand how the unemployment rate is calculated as well as the employment-population ratio and the labor force participation rate. See the table below for the actual figures from the December jobs report.| Nov 2018 | Dec 2018 | gain/loss | |
|---|---|---|---|
| Noninstitutional Population | 258,708,000 | 258,888,000 | + 180,000 |
| Civilian Labor Force | 162,821,000 | 163,240,000 | + 419,000 |
| Participation Rate | 62.9% | 63.1% | + 0.2% |
| Employed | 156,803,000 | 156,945,000 | + 142,000 |
| Employment-Population Ratio | 60.6% | 60.6% | + 0.0% |
| Unemployed | 6,018,000 | 6,294,000 | + 276,000 |
| Unemployment Rate | 3.7% | 3.9% | + 0.2% |
The base data is the Noninstitutionalized Population which is defined earlier. This is the pool of people that are capable of joining the labor force. The Noninstitutionalized Population is not optional when figuring the Employment-Population Ratio. The Labor Force is the sum of the total number of people who are classified as either employed or unemployed. The Labor Force is the base figure that the Unemployment Rate is calculated from. The Unemployment Rate is calculated by taking the total number of unemployed by the total Labor Force figure.
December Unemployment Rate Calcuation
| 6,294,000 / 156,945,000 = | .038556 = | 3.8556% rounded to 3.9% |
November Unemployment Rate Calcuation
| 6,018,000 / 162,821,000 = | .036960 = | 3.6960% rounded to 3.7% |
Taking rounding errors into consideration is important because the numbers discussed here are in the 9 figures. Rounding to the nearest 1/10th of one percent can mean as many as 50,000 fewer or more than what the actual numbers are. Because the unemployment rate is rounded to the nearest 1/10th of one percent, it is important to do go deeper than the actual news release goes. The actual increase in the unemployment rate is .1596%. To check this against the numbers, simply divide the 276,000 net increase in the number of unemployed to the December Labor Force. 276,000 / 163,240,000 is .1690%. That means that rounding up to .2% could lead people to believe that there are more than 50,000 more unemployed than there really is.
Now, why did the number of unemployed rise by 276,000? It is because 419,000 people entered or re-entered the labor force in December. It is difficult to know why this occurred, but it is likely the combination of several things. The fall harvest ended in October or November, so these people may have re-entered the labor force after taking a few weeks off. Others may have more confidence in their ability to find a job, so instead of instead of being marginally attached to the labor force, they began to actively search for work. The number of people marginally attached to the labor force decreased by 122,000 in December. It could also be that there are simply people who may have graduated from college at the end of the fall semester and began looking for work during December. These are not the only reasons, but these are some reasons that should make sense.
The December jobs report demonstrates that the unemployment rate going up is not always a negative thing for the economy. In fact, it could mean better economic output in the outlook for 2019 because of the growth in the labor force. This is also a demonstration that reading just raw statistics doesn't create a narrative. The next post will demonstrate how a decrease in the unemployment rate can be negative for the economy.
