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Posts tagged with: "UNRATE"

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‘Tis the season for adjustment

What difference does seasonality make in the unemployment rate over time?

If you’ve spent time graphing in FRED, you’ve run across the term “seasonally adjusted.” Seasonal adjustment uses mathematical algorithms to adjust data for predictable seasonal variations using the changes between new observations and those from a year prior. When analyzing long-term trends in data such as unemployment, which tends to increase in January and June, seasonal adjustment helps economists see the cyclical trends underlying month-to-month patterns caused by school schedules, holidays, harvests, and a plethora of other factors. For more information on seasonal adjustment, see this explanation from the Federal Reserve Bank of Dallas.

The difference between the seasonally adjusted unemployment rate and the original is presented in the top graph, where subtracting the raw data from the adjusted data shows the impact of seasonality on the data over time. Overall, seasonal adjustment made a bigger difference in the unemployment rate in the 1950s than it has in the past several decades because of the recent trend toward year-round employment. The distribution of workers across various industries has shifted significantly over the past 60 years, and different industries are subject to varying degrees of seasonal variation.

The graph below shows the overall declines of employment in two U.S. industries: Agriculture, which hires more workers during harvest seasons, employed 4.4% of workers in 1970 but only 1.2% in 2012. Likewise, manufacturing employment has declined by 16.1% over the same span of time and also employs workers based on seasonal factors and fluctuating production needs. By contrast, the Bureau of Labor Statistics reports that, between 1939 and 2015, employment in the private education and health services sector, known as the least cyclical sector in the economy, grew from 4.6% to 15.6% of all nonfarm jobs. Other sectors that have grown in employment share include retail trade and financial activities, which employ most workers year-round and thus do not contribute to seasonal variation as much as the industries that have declined.

How these graphs were created: For the first graph, search for “monthly unemployment rate U.S.” and select the seasonally adjusted series. Click “Add to Graph.” Under “Edit line 1,” add another series by searching for “monthly unemployment rate U.S.” again and selecting the not seasonally adjusted data. Click “Add.” In the formula tab, enter a-b and click “Apply.” For the second graph, search for “percent unemployment in agriculture” and select the relevant series. Click “Add Line” in the “Edit Graph” page and search for “percent unemployment in manufacturing” and select the relevant series.

Suggested by Maria Hyrc.

View on FRED, series used in this post: UNRATE, UNRATENSA, USAPEFANA, USAPEMANA

What is unemployment?

There is more to it than not working

What is unemployment? To answer this question first requires a few definitions. A person is considered unemployed if he or she is actively seeking work and willing to take work here and now. It is therefore not sufficient to simply not be working. But this definition of unemployment does necessarily define (1) whether someone who is underemployed should be counted as well or (2) how intensely someone must search for a job to qualify as unemployed. For this reason, the Bureau of Labor Statistics provides different unemployment rates, graphed above. These are commonly called U-1 through U-6:

  • U-1 counts only those who have been unemployed for at least 15 weeks, which was traditionally a little longer than the average duration of an unemployment spell. This is considered to exclude short-term unemployment.
  • U-2 counts those who are unemployed because they have lost a job or completed a temporary job—in other words, workers in a precarious situation in the labor market, as they are more likely to find an unstable or unsatisfying job.
  • U-3 is the headline unemployment rate generally reported in the media: People who are able to work, ready to work, and have looked for work in the past four weeks. This corresponds the most closely to the definition of unemployment we started with.
  • U-4 is U-3 plus those who would like to work but have stopped looking—the so-called discouraged workers—because they believe there are no jobs for them.
  • U-5 is U-4 plus those who are marginally attached to the labor market who, for any reason, are no longer searching for work but may still work.
  • U-6 is U-5 plus those who are working part-time but would prefer to work full-time.

These various interpretations of the definition of unemployment allow us to have a better understanding of the status on the labor market. But one may still have some misgivings about them. For example, the higher-numbered definitions give equal weight to different classes of unemployed workers. For example, should a person qualifying for U-1 count as much as a person qualifying only for U-5 and U-6 when evaluating the health of the labor market? To address this question, there is the Hornstein-Kudlyak-Lange index that creates a weighted sum of the different categories. The goal is to evaluate the underutilization of labor in the economy. This index (it is available with and without the part-time workers from U-6) is plotted below along with the popular U-3.

The graph below shows the non-employment rate, which is quite different from the unemployment rate. Indeed, it counts all those who are not part of the labor force, which comprises those who are either working or unemployed. The non-employment rate, which is thus the complement to the labor force participation rate, measures those who do not want to work. Principally, these are retirees, students, people with various handicaps, people who dropped out of the labor force, and people who do not want to work. Note that military personnel are not part of any of these (civilian) calculations.

How these graphs were created: For the first graph, go to the Alternative Measures of Labor Underutilization release table from the Bureau of Labor Statistics’ Employment Situation release. Select all (seasonally adjusted) series and click “Add to Graph.” For the second graph, search for and select the monthly, seasonally adjusted unemployment rate. Then click on “Edit Graph” to add the two other lines: Search first for “non employment index” and select the base index (not the index that includes people working part-time for economic reasons). Then search for “non employment index” again and select the index that includes people working part-time for economic reasons. For the last graph, search for “labor force participation rate”, click on “Edit Graph” and apply formula 100-a.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: CIVPART, NEIM156SFRBRIC, NEIPTERM156SFRBRIC, U1RATE, U2RATE, U4RATE, U5RATE, U6RATE, UNRATE

Fan your forecasting flame with FREDcast

FRED’s new forecasting game

On January 20th FRED’s newest data gizmo, FREDcast, is coming out of beta. FREDcast is an interactive forecasting game that allows users to enter forecasts for four different economic variables, track their forecast’s accuracy on the scoreboards, and compete with friends and other users in leagues. The game is designed for all levels of users, from high school students to professional forecasters. Just log-in to FREDcast using your FRED account and walk through the prompts to enter your forecasts for each variable. FREDcast forecasts are zero horizon, meaning users forecast economic data for the month (or quarter) in which they are in. For example, from January 1st to January 20th, users submit forecasts for the January unemployment rate, the January consumer price index (CPI), the January payroll employment, and quarter one real gross domestic product (GDP). Forecasts are due by the 20th of each month, and scores are released as the economic data come out. View exact release dates on FRED’s economic calendar.

The four FREDcast series are available in FRED. Below is a graph of each series in the appropriate units for FREDcast forecasts. All series in FREDcast are seasonally adjusted. From top to bottom: Real gross domestic product (GDP) is the only quarterly series, and the units are the percent change from the preceding period at a seasonally adjusted annual rate. Next is the unemployment rate, which is forecast as a monthly rate. Next are the consumer price index (CPI) and payroll employment. The inflation series used in FREDcast is the percent change in the CPI from one year ago, while payroll employment is the level change from the prior month measured in persons.

How these graphs were created: GDP: Search for real gross domestic product, and graph the series with the units “Percent Change from Preceding Period, Quarterly, Seasonally Adjusted Annual Rate.” Set the start date to 2006-07-01, and follow this path: Edit Graph > Format > Graph Type > Bar. Unemployment Rate: Search for unemployment rate, and graph the seasonally adjusted civilian unemployment rate. Set the start date to 2006-12-01. CPI: Search for consumer price index, and graph the series “Consumer Price Index for All Urban Consumers: All Items” with monthly, seasonally adjusted units. Set the start date to 2006-11-01, and follow this path: Edit Graph > Units > Percent Change from Year Ago. Payroll Employment: Search for payroll employment, and graph the series “All Employees: Total Nonfarm Payrolls” in seasonally adjusted units. Set the start date to 2006-12-01, and follow this path: Edit Graph > Units > Change, Thousands of Persons. Last, multiply the series by 1000 to get it in units of persons by entering a*1000 in the formula box and clicking “Apply.”

Suggested by Michael Owyang and Hannah Shell.

View on FRED, series used in this post: A191RL1Q225SBEA, CPIAUCSL, PAYEMS, UNRATE


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