The spider chart is designed to allow real-time tracking or monitoring of broad labor market developments by comparing current conditions to those in the fourth quarters of 2007 (prerecession peak) and 2009 (postrecession trough in employment). Indicators of labor market status are broken up into four groups: Employer Behavior, Confidence, Utilization, and Leading Indicators. The data will be updated twice monthly.
1. Why does the Federal Reserve care about employment?
Section 2A of the Federal Reserve Act states, "The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long-run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." This part of the Federal Reserve Act is often referred to as the Fed's "dual mandate." Basically, it states that the Federal Reserve's monetary policy has the goals of stable prices and maximum employment. The gap between the unemployment rate and the estimated normal rate of unemployment is the most popular statistic that measures the degree to which the Federal Reserve has achieved the goal of maximum employment.
2. What is the basic idea behind the spider chart?
The two spider charts use 13 measures of labor market activity. The first chart shows how far away the labor market is from conditions that prevailed when employment was at its postrecession low and how close to conditions that prevailed when employment was at its prerecession peak. The second chart converts the upward trending indicators in the first chart to rates.
As an earlier macroblog post explained, some of the indicators will tend to increase over time due to population or labor force growth. This could cause the first chart to overstate "improvement" in these indicators.
The Job Openings and Labor Turnover Survey (JOLTS) based series—quits, hires, and openings—is converted to rates by using the published quits rates, hires rate, and openings rate. The variables part-time workers for economic reasons and marginally attached workers are converted to rates by dividing those numbers by the size of the labor force. Finally, payroll employment, temporary help services employment, and initial unemployment insurance claims are converted to rates by dividing them by the U.S. Bureau of Labor Statistics (BLS) research series of the labor force smoothed for population control breaks.
The National Federation of Independent Business (NFIB) and Conference Board survey measures are already rates and do not need to be rescaled.
3. Why not simply look at the unemployment rate?
Commentary on the labor market tends to focus on the unemployment rate as the summary measure of the health of the labor market. However, while trends in the unemployment rate over the medium term are a pretty good gauge of changes in overall labor market conditions, over short periods of time the unemployment rate can be influenced by factors that make it a less reliable directional gauge. For example, it is possible that the unemployment rate could rise for a while as conditions improve as those currently out of the labor force enter at a faster rate but fail to secure a job immediately.
4. Why wasn't labor force participation used in the set of indicators?
There are many demographic and behavioral factors currently affecting the size of the labor force that are completely independent of current economic conditions —the main issue being the aging of the baby boomers. This makes it very difficult to interpret changes in the rate of labor force participation.
5. How are points on the spiderweb constructed?
Nonfarm payroll employment (Payroll) is used as an example; the other series uses the same formula. The month t spider-plot value of payroll employment is:
SpiderPayroll,t = 100*(( Payrollt + Payrollt-1 + Payrollt-2) – (PayrollDec09 + PayrollNov09 + PayrollOct09)) / (( PayrollDec07 + PayrollNov07 + PayrollOct07) – (PayrollDec09 + PayrollNov09 + PayrollOct09))
Three-month sums are used because some of the indicators are volatile. By construction, each series is 100 in December 2007 and zero in December 2009.
6. If the recession ended in June 2009, why is the "trough" circle given as December 2009?
The National Bureau of Economic Research determined that the 2007–2009 recession ended in June 2009. However, payroll employment fell in seven of the eight subsequent months and the unemployment rate increased from 9.5 percent in June 2009 to 10 percent in October 2009. Therefore, the trough of the labor market is closer to December 2009 than to June 2009.
7. How are data released after the Employment Situation release handled?
The JOLTS data series (quits, hires, and openings) for a given month are released about five and a half weeks after the BLS's Employment Situation. Therefore, on the day of the Employment Situation release for month t, only JOLTS data through month t-2 will be available. In this case, the spider plot values of the JOLTS series in months t-1 and t will be set equal to their corresponding spider plot values for month t-2.
Also, on the day of the Employment Situation release for month t, NFIB survey data will only be available through month t-1. In this case, the spider plot values of the NFIB series in month t will be set equal to their corresponding spider plot values for month t-1.
8. Initial unemployment insurance claims are weekly; how are they converted to monthly?
Daily claims are assumed to be constant within each week. Monthly claims are taken to be the average of the daily claims for all the weekdays in the month. Sometimes after the Employment Situation release, not all of the "daily" initial claims data for the prior month will be available. In these cases, the most recent four-week moving average will be used in place of the missing monthly value.
9. Does movement outward on the chart always indicate an increase?
No. There are four variables that move inversely to payroll employment. These are unemployment, initial unemployment insurance claims, part-time for economic reasons, and marginally attached. For each of these variables, the indicator is inverted so that the decline is represented by outward movements on the chart.
10. Are there other ways to visualize improvement in labor market conditions?
Of course there are; one example is the "The Labor Market in Recession and Recovery" plots from the Federal Reserve Bank of New York.
11. The marginally attached workers category is not seasonally adjusted by the BLS; do you seasonally adjust it yourselves?
Yes. The series is seasonally adjusted using the default (X12-ARIMA) settings in Haver Analytics. Additionally, there is residual seasonality in the BLS's seasonally adjusted measure of part-time workers for economic reasons. Therefore, the BLS's seasonally adjusted series for PTER workers is also seasonally adjusted, again using the default settings from Haver.
Payroll employment (CES)
The total level of employment reported in the payroll survey
Job openings (JOLTS)
All open positions (not filled) on the last business day of the month; a job is "open" only if it meets all three of the following conditions:
The number of additions to the payroll during the month
Hiring plans (NFIB)
The share of surveyed firms that plan to increase total employment over the next three months
Job availability (Conference Board)
Percentage of survey respondents who say they find "jobs plentiful"
Number of employees who left voluntarily, with the exception of retirements or transfers to other locations
Number of persons in the labor force who are unemployed
Marginally attached workers (CPS)
The number of individuals 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, but were not counted as unemployed because they had not searched for work in the four weeks preceding the survey.
Job finding rate (CPS)
This series is constructed using data from the research series on labor force status flows from the CPS. The job finding rate is the total number of employed persons who were unemployed in the prior month (UE) divided by the total number of persons who were both unemployed in the prior month and part of the age 16-plus civilian noninstitutional population in the current month. Data on labor force status flows are available here.
Work part-time for economic reasons (CPS)
This category includes the number of persons who indicated that they would like to work full-time but were working part-time (one to 34 hours a week) because of an economic reason, such as their hours were cut or they were unable to find full-time jobs.
Initial claims (UI)
The number of new claims for unemployment insurance
Firms unable to fill job openings (NFIB)
Share of surveyed firms reporting at least one job opening they are currently not able to fill
Temporary help services (CES)
This industry comprises establishments primarily engaged in supplying workers to clients' businesses for limited periods of time to supplement the workforce of the client. The workers are employees of the temporary help service establishment. However, these establishments do not provide direct supervision of their employees at the clients' work sites. The data included is the level of employment in this industry.
Job Opening and Labor Turnover Survey (JOLTS)
The U.S. Bureau of Labor Statistics, through the Atlanta JOLTS Data Collection Center, collects data from a sample of approximately 16,000 U.S. business establishments. The JOLTS survey covers all nonagricultural industries in the public and private sectors for the 50 states and the District of Columbia. JOLTS collects data on total employment, job openings, hires, quits, layoffs and discharges, and other separations.
Establishment Survey (CES)
Through the establishment survey, which is formally called the Current Employment Statistics (CES) program, the BLS surveys approximately 145,000 nonfarm businesses covering about 557,000 work sites, asking employers about employment, hours, and earnings of their workers. The establishment survey is commonly referred to as the payroll survey.
The survey's total employment number reflects an estimate of the number of people in the United States who received a paycheck for work during the pay period that includes the 12th day of the month. This count most accurately gives the total number of jobs in the country at a given point in time.
Household Survey (BLS)
The BLS also surveys about 60,000 households each month to obtain estimates of employment and nonemployment activity, total income, and demographics of the population of the United States. The reference period for activity is the same week as the establishment survey: the week that includes the 12th day of the month. The household survey is officially called the Current Population Survey (CPS).
Unemployment Insurance Weekly Claims Report (UI)
The U.S. Department of Labor produces the UI report.
National Federation of Independent Business Research Foundation Small Business Economic Trends Survey (NFIB)
This survey is conducted monthly of members of the NFIB. There are generally between 500 and 2,500 responses each month and they are used to construct the Index of Small Business Optimism.
The Conference Board Consumer Confidence Survey® (CB)
This survey uses a probability sample design to select each month's random sample from the household universe frame. There is a target of 3,000 responses per month.