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There’s more to the story than headline unemployment

Earlier this month, the Bureau of Labor Statistics reported September’s unemployment rate was 4.2% and the number of unemployed persons decreased by over 300,000. Does that mean every one of those 300,000 individuals found a job? Many Americans view decreases in unemployment positively, but there’s more to the unemployment story than just the headline. The reported unemployment rate is a proportion of members of the civilian labor force who have actively but unsuccessfully searched for a job in the past four weeks. This measure is frequently criticized for ignoring two segments of the population: those who have given up searching for work (i.e., discouraged workers) and those who would accept a job if offered one but aren’t actively searching (i.e., marginally attached workers). Moreover, those working part-time are counted equally in employment data as those working full time, regardless of what they’d prefer.

Because the BLS understands the shortcomings of the headline rate, they record unemployment data for all these groups and release six different measures of unemployment. The graph shows some of these measures for the state of Missouri. The teal line on the bottom shows the headline unemployment rate, and the green line adds the percentage of discouraged workers. Notice that the number of discouraged workers increases after a spike in the headline rate. While headline unemployment reached a peak in the first quarter of 2010, the number of discouraged workers was highest throughout 2011 and 2012, reaching 1.3%. The increase in individuals not actively searching for a job indicates some of the social costs of unemployment: pessimism toward the labor market and a pervasive belief that jobs are increasingly difficult to find, causing workers to stop searching for jobs in the first place. This collective shift may take years to improve, explaining the delayed yet sustained increase.

The measure shown by the dark line includes the percentage of marginally attached workers but does not include discouraged workers. This category includes individuals who have searched for a job in the past 12 months, but not in the past four weeks. This measure of marginally attached workers as a percentage of the whole remains fairly consistent over time. The final segment of the unemployed population, shown by the blue line, adds the percentage of individuals employed part-time for economic reasons: They desire a full-time job, but work fewer than 35 hours per week. We expect the proportion of these individuals to increase during times of economic downturn as employers may cut hours before firing employees. However, the percentage is highest in the second quarter of 2010, at 5.4%, and not earlier in the Great Recession. Reasons for this delay may be economic uncertainty and the possibility of workers on contracts that delay employers’ responses. Furthermore, many workers may have been satisfied with a part-time job during the Great Recession, but then began reporting their part-time work as involuntary as the recovery started and the outlook improved.

How this graph was created: Search for “unemployment in Missouri” and select the seasonally adjusted series. From the “Edit Graph” tab, click “Add line” and search for “unemployed plus discouraged Missouri” and select the relevant series. Add a third line and search for “unemployed plus marginally attached Missouri” and select the series. Finally, add a fourth line and search for “unemployed plus part-time Missouri.” Change the start date to 01-01-2004.

Suggested by Maria Hyrc and Christian Zimmermann.

View on FRED, series used in this post: MOUR, U4UNEM4MO, U5UNEM5MO, U6UNEM6MO

Three views of the U.S. trade deficit

Minding units and considering services

Consider the graph above, which shows the U.S. trade balance. It looks like things are seriously heading south, with a deficit that’s ten times larger than it was 25 years ago. Is it really that bad? For one thing, the economy as a whole has grown significantly over this period, and prices have increased, too. To address these biases, we should divide the trade balance by our favorite nominal index, nominal GDP. The result is the graph below.

Now that the units are percentages of GDP, we can see that the deficit is five times as large as it was 25 years ago, not ten times. And it has actually improved since the previous recession, to a little more than three times its size, topping out at –4% of GDP. But wait, there’s more: International trade doesn’t pertain to goods alone; it also involves services. And here, the United States actually enjoys a surplus. So, if you redo the second graph with the trade balance for goods and services, you obtain the graph below:

Finally, we see that the current trade deficit is at about 3% of GDP. Is that a lot? Actually, a deficit isn’t necessarily bad. See a previous blog post on the topic.

How these graphs were created: For the first graph, simply search for “trade balance” and take the series that pertains only to goods. For the second graph, use the first and then go to the “Edit Graph” panel: From there, add “nominal GDP” and apply the formula a/b/10*12. (The idea is to divide by 1,000 to put both series into the same units and then multiply by 100 to obtain results in percentages, which reduces to simply dividing by 10. Multiplying by 12 changes the trade balance’s monthly frequency to an annual frequency, to match nominal GDP’s annual frequency.) For the the third graph, replace the trade balance for goods with the trade balance for goods and services.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: BOPGSTB, BOPGTB, GDP

A 30-year growth spurt?

The proportion of total output contributed by nonprofits has risen consistently, even during recessions

The nonprofit sector in the U.S. has grown substantially in recent years. A survey from the National Center for Science and Engineering Statistics found that, from 1997 to 2007, nonprofit revenue grew 33% faster than overall U.S. GDP. The Bureau of Economic Analysis defines nonprofits as tax-exempt institutions, specifically those serving households in 5 major categories: religious and welfare organizations, medical care, education and research, recreation, and personal business associations. The graph above shows that the share of the nonprofit sector in GDP has indeed increased. The interesting part is that it has increased every year, especially in recession years.

The scatter plot above confirms this: By putting the share of GDP on the vertical axis and the index of recession probability on the horizontal axis, we obtain a point for every year in the sample. The points tend to follow a positive slope, which indicates that this grows more when there’s a higher likelihood of recession. In fact, the sector has proven to be quite resilient: According to the Bureau of Labor Statistics, nonprofit employment increased 8.5% from 2007 to 2012, growing every year during the Great Recession. Nonprofits also employ 1 in 10 U.S. workers, and the proportion is likely to grow, given current trends. So, why does nonprofits’ share of GDP increase more significantly in recessions? The answer likely has to do with disproportionate growth of nonprofits and disproportionate lack of growth in other sectors.

Nonprofits promote the public good. So, during economic downturns, they may have greater opportunity to increase their output. In fact, nonprofits can play a central role in economic recovery, for example, by directly remediating problems associated with recessions (such as unemployment) through welfare spending and expanding economic opportunities through education. On the other hand, other sectors of the economy experience disproportionate decreases in growth compared with nonprofits. Durable goods manufacturing and construction industries accounted for more than 28% of GDP in the second quarter of 2007; two years later, they accounted for less than 22%. As other components of GDP shrink, the nonprofit output tends to rise.

How these graphs were created: Search for “gross output nonprofits” and select the relevant series. In the “Edit Graph” tab, search for “nominal GDP” and select the not seasonally adjusted series. Click “Add.” In the formula tab, type (a/b)*100 to yield the percentage. To transform the first graph into the second, change the units to “percent change.” Select “Add Line” and search for “recession indicator” and add it to the graph. Change its frequency to “Annual” with the default averaging. In the format tab, change the graph type to “Scatter.”

Suggested by Maria Hyrc and Christian Zimmermann.

View on FRED, series used in this post: DNPERC1A027NBEA, GDPA, JHGDPBRINDX

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