Economic Indicators (last updated on Thursday, January 18, 2018)
UNEMPLOYMENT RATE: It is the simple ratio between the size of the labor force and those who are not working and actively seeking employment. It’s a proxy for the relative tightness of the labor market and ease or difficulty of finding workers for jobs.
NUMBER OF UNEMPLOYED PERSONS: These people, who are not working nor have a job, are part of the labor force because they are willing to work and actively looking for work or a job. Obviously, this is a ratio of the size of the labor force and those who are not employed.
JOBS GROWTH: This is the gross number of net new jobs created by businesses for the month. Although opinions vary, based on many factors including the changing curve of the demographic profile of the labor force that is aging, about 100,000 new jobs a month is considered by some as “normal” for a growing economy. The value reported is the number of net new jobs created by businesses every month.
LABOR FORCE PARTICIPATION RATE: This is the percentage or ratio of the civilian population that is part of the civilian labor force, regardless is they are employed or unemployed. It changes very little from month to month or even year over year. As baby boomers retire and leave the workforce, this figure is expected to decrease and put more pressure on labor force growth.
DISCOURAGED WORKERS: This is someone who is unemployed, has looked for work in the past 12 month but has not attempted to find work or a job in the past month, usually because they have given up looking because they could not find suitable employment either because there are no jobs available or none for which they are qualified. However, because this group is no longer looking for a job, they are not considered part of the active labor force and therefore, not counted as unemployed nor are their numbers reflected in the unemployment rate. This is a measurement can be considered a proxy for the relative ease – or difficulty – of finding a job. The value reported is the number of discouraged workers.
JOB OPENINGS, HIRES, AND SEPARATIONS (private): These three matrices measure the flow in the job market. Employers are constantly looking for new workers (job openings), hiring new workers (hires), as well as letting some go (separations). When the number of separations is greater than the number of new hires, this results in a net loss of jobs in the employment economy. But as some employers are trimming their staffing levels, others are looking to add employees (job openings). These data are also available on a regional and sector basis.
LMCI: The Labor Market Condition Indicators are two monthly measurements that consolidate 24 different labor market variables that some consider more comprehensive that single labor market indicators such as the unemployment rate and the job count. A positive value signifies labor market conditions that are above its long-run average and a negative value indicates conditions below.
GDP (Gross Domestic Product): This is the value of all the goods and services produced in the economy. The government produces it on a quarterly basis and since it contains so many measurements that may not all be available immediately after the close of a quarter, it is released three times: “advance estimate” at the end of a quarter, then “second estimate” a month later, and ultimately “third” in another month. The GDP is naturally a very large dollar figure so the value reported is the percentage change from the previous period.
CFNAI-MA3 (Chicago Fed National Activity Index, three-month moving average): One of the shortfalls of looking at GDP as a proxy for the overall health of the economy is that it is only reported on a quarterly basis, while the CFNAI, which is based on the weighted average of 85 separate economic indicators or components, is computed on a monthly basis. The Chicago Fed National Activity Index is a “monthly index designed to better gauge overall economic activity and inflationary pressure” according to its producer. But a monthly value can be somewhat volatile, so a three-month moving average “provides a more consistent picture of national economic growth.” A value of zero indicates the economy is expanding at its historic trend and a positive value is a sign of above-average growth and a negative value point towards below-average growth. If CFMAI-MA3 is below negative 0.70 after a period of economic expansion, there is a possibility that a recession has begun; if the value is above positive 0.70 after more than two years into an expansion, there is a likelihood that a period of sustained increasing inflation has begun.
(The inclusion of the term “Chicago Fed” in its name is only for the purpose of identifying its origin. It is an index of national economic activity and not Chicago centric.)
CONSUMER CONFIDENCE INDEX (The Conference Board): This is a monthly survey by a private-sector business organization that measure how pessimistic or optimistic consumer are for the near term future. It’s valuable to follow because if consumers are growing in their confidence of the economy, they will purchase more and this increase in spending will stimulate the economy and create more growth. Incidentally, the survey is of 5,000 households and opinions on current conditions are weighted as 40% of the index and 60% of expectations of future conditions. The index was first calculated in 1985 so the reported value is benchmarked to that year, when it was 100. The current value may be difficult to interpret so observers who watch this index need only pay attention to its change from the previous month.
CONSUMER SPENDING (PCE): This is a relatively amorphous term often used by the media to describe myriad information such as the changes in major retailers’ revenues or even activity of entire industrial sectors that are consumer centric. Unfortunately, data from the Consumer Expenditure Survey are released about two years after the fact. Therefore, the most encompassing and current information on consumer spending is Personal Consumption Expenditures (PCE) that is the total amount for goods (durable and non-durable) and services purchased by individuals. Since consumer spending is a major driver of the economy – it is about two-thirds of GDP – this is an important metric of overall economic health. However, increases in PCE can also be driven by inflation, so this figure should only be considered in conjunction with other economic news. The value reported in the above table is the percentage change from the previous month.
Inasmuch as developments in the housing sector are having a major influence on the overall economy,
certain metrics from the construction/housing sector are presented.
BUILDING PERMITS: Considered an indicator of future housing starts and general spending trends. The value reported is the percentage change from the earlier time period.
HOUSING STARTS: This is considered an important economic indicator because it likely is an indicator of how much money the general public has and is putting into the economy. The value shown is the percentage change in the number of new homes (technically, the number of new housing units) on which construction has begun.
HOUSING COMPLETIONS: Considered an indicator of future housing sales and general spending. The value presented above is the percentage change from the earlier period.
NEW RESIDENTIAL SALES: Considered an indicator of consumer spending as well as the entire housing sector itself and is considered a supply indicator.
EXISTING HOME SALES: Considered an indicator of the relative health of the housing sector and is considered a demand indicator. This indicator is very dependent upon mortgage rates.
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last updated January 18, 2018