Econ Category #2: Employment and Wages (Part II)

 

“The hardest arithmetic to master is that which enables us to count our blessings.”  

– Eric Hoffer

 

Howdy, gang! I’ve found that it can be a lot easier to discuss the ideas of economic analysis with a person, one on one, compared to explaining it through the written word! There’s clearly a lot that can be said and I definitely don’t want to be accused of not being thorough enough, so I felt that I had to split this second category into two sections. Piecing together the introductory information put into the previous installment of “Know Good Things” along with the information I plan to put into this week’s should put you up to speed on all things “employment” related. Let’s get down to it!

So, the “Employment Situation” (introduced in the previous blog) is what the markets focus on.  This is the report (generated by the NBER) that gets all of the headlines and usually adds a bit of emotion amongst traders for a relatively short period of time (you’ve probably even noticed it while watching the markets).  There are, however, other official employment reports that are issued and offer a heck of a lot more information.  The BLS offers us six different reports on employment, which I find to be much more inclusive and detailed.  Those reports are labeled as: U1, U2, U3, U4, U5, and U6.  Here’s a quick breakdown:

• U1: Percentage of labor force that is unemployed for 15 weeks or longer

• U2: Percentage of labor force who has lost their jobs or completed temporary work

• U3: Referred to as the “official unemployment rate” and occurs when people are without jobs and have actively searched for new jobs within the past four weeks

• U4: Combines the number found in the U3 plus any “discouraged workers” (who, again, are people who have given up looking for jobs)

• U5: Combines the number found in the U4 plus any “marginally attached workers” (people who are able/want to work, but have not looked recently)

• U6: Combines the number found in the U5 plus part-time workers who actually want to work full-time, but can’t because of a lack of opportunity (commonly referred to as “underemployed”)

 

For my money, I’ll take the results of the U6 over the data given to us in the Employment Situation report as a TRUE MEASURE of unemployment for the United States. Why don’t we just use the U6 instead of the Employment Situation report? I don’t know. I’m sure there’s a bureaucrat somewhere who could spend three hours explaining the reason, but I’m not interested.

Of course, I still need to pay attention to the Employment Situation report because it’s the report that “the market” pays attention to, but I’ll still do a bit of digging to find the U6 because I want to know what the real trends are regarding employment. I want a heads up in case something bad is brewing so I can be better prepared. If you’re interested, you can click HERE to read all the U6 information.

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As for the type and classification (for reference to the “types” and “classifications”, please read the previous posts of KGT HERE) of economic reports that fall into this second category (employment and wages), allow me to list the following:

• Unemployment Rate (monthly; via Employment Situation OR the U6)

Lagging; countercyclical

• Civilian Employment (monthly)

Coincident; procyclical

• Average Weekly Hours (monthly)

Lagging; Procyclical

• Hourly Earnings and Weekly Earnings (monthly)

Lagging, procyclical

• Labor Productivity (quarterly)

Lagging, procyclical

It is important to note that the most popular report in this category revolves around unemployment and that any economic data regarding unemployment is to be considered a lagging indicator.  Companies don’t hire people when they hope business will start to pick up; they hire people after evidence shows that business has or almost certainly will pick up!  By the time we are told that the unemployment rate is decreasing, the economy has already shifted in a positive direction, hence the reason that employment data is a lagging indicator.  It should also be noted that employment data is extremely emotional, which is why the markets usually react quickly to any changes. 

I hope that you’re finding value and interest in these publications.  I truly do.  It may seem like a bit much or even a wee bit convoluted at times, but I believe this is an aspect of trading that, if utilized, can only increase your overall trading acumen. 

Until next time, my friends!  God bless and good luck!

 

Be good.  Do good.  Know good.

Kleiny (@KnowGoodThings)

Columbus, Indiana