Passing the Trough
Subject Unemployment rates
Topic Employment, Unemployment, and Inflation
Key Words Employment, Unemployment, Labor Force, Interest Rate
News Story

The nation's unemployment rate rose to 5.8 percent in December, the highest rate in 7 years. Starting from a 4.0 percent rate in January, unemployment has climbed 1.8 percentage points over the year, with half of the increase coming after the September 11 terrorist attacks. Other data in the Labor Department's report indicate that the economic decline is slowing and provided support for forecasts that the recession will end by March and economic growth will start in the second quarter of the year.

During 2001, the number of people who are without work and looking for work increased from 5.7 million to 8.3 million. October and November combined accounted for 800,000 of this total. Job losses in manufacturing fell 133,000 in December, making the yearly job loss equal to 1.3 million. Employment in the travel industry, an industry severely impacted by the terrorist attacks, fell by 32,000 in December.

While the aggregate unemployment rate rose to 5.8 percent from November's 5.6 percent rate, there was considerable variation among demographic groups. Unemployment increases among adult women was a large share of the total increase. Their unemployment rate increased to 5.2 percent in December, from 4.9 percent last month. The rate for adult men was unchanged at 5.2 percent. Hispanics and teens had significant increases in their rates, while the unemployment rate for blacks increased to 10.2 percent from 9.9 percent. It was the first time that the black unemployment rate reached double digits in 4 years.

Besides evidence of continued weakening in the jobs market, the Labor Department report contained a number of signs that the rate of decline had slowed and the recession could end soon. Job losses were the smallest since September 11. Hours worked in manufacturing increased for the first time since January 2001, and total hours worked in private non-farm industries was stable. Stable total hours coupled with some evidence that productivity continues to improve, means that production has increased, a hopeful sign that the recession has run its course. Average hourly earnings rose 4.1 percent for the year.

(Updated February 13, 2002)

1. Suppose that economic activity picks up in January and that the number of jobs expands rather than contracts. Does the unemployment rate have to decrease? What are possible outcomes concerning the unemployment rate?
2. Analysts argue that an unchanged total number of hours worked, coupled with an increase in productivity means that production has increased. Explain their argument?
3. Hispanics, teenagers, blacks and non-high school graduates were demographic groups that were the most adversely affected by the economic downturn. What are some arguments that are used to explain this?
Source John M. Berry, "Joblessness Rises, but Some Positive Signs Seen," The Washington Post, January 5, 2002.

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