The ABC's of Counting
Subject Unemployment
Topic Employment, Unemployment, and Inflation
Key Words Unemployment Rate, Economic Recovery, Labor Force
News Story

The unemployment rate for January fell slightly, from 6.0 percent in December to 5.7 percent. About 143,000 jobs were added in January, the largest increase since November 2000. A decrease in the unemployment rate and an increase in the number of jobs created should have been received warmly by the business and financial communities as strong evidence that the economy was improving. Instead, the reception was lukewarm. The good news may only be a statistical fluke. On the other hand, some believe that the fact that there was no decrease in employment may be evidence that the economy is stabilizing.

When the Labor Department calculates the monthly unemployment rate, it looks at changes in the labor force and changes in employment. To account for swings in these variables that result from seasonal patterns, such as Christmas hiring in retail sales, or construction inactivity in winter, the Bureau of Labor Statistics (BLS) seasonally adjusts the data. For example, an increase in hiring during the Christmas season will affect the data only when the increase is greater than an average of past Christmas hiring. This past November and December, firms did not hire as many workers as during past years. This was reflected in the data as an increase in job losses and an upturn in the unemployment rate. In January, with fewer seasonal workers to dismiss, the seasonal adjustment made it appear that more workers were hired. The BLS made other technical changes in the way the unemployment rate is calculated, making comparisons between December and January more difficult.

Jobs were added in construction, health care, education and the federal government. Manufacturing continued to lose jobs, shedding 16,000 jobs in January. State government employment decreased 27,000 in the past month, an occurrence that may be repeated in future months.

Long-term unemployment, that is, individuals who are unemployed more than 27 weeks, increased from 1.2 million in January 2002, to 1.7 million this January. The number of discouraged workers increased 37 percent over the past year.

(Updated April 3, 2003)


What is a discouraged worker? Are discouraged workers included or excluded from the calculation of the unemployment rate? What generally happens to the number of discouraged workers during a recession? Explain your answer.

2. What is long-term unemployment? Why is it different from cyclical unemployment?
3. What is meant by the term "seasonally adjusted" data. Why do data need to be seasonally adjusted?
Source Neil Irwin and Kirsten Downey, "Unemployment Down Slightly to 5.7% in January," The Washington Post, February 8, 2003.

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