Below are definitions for indicators that are frequently followed by EPI. For interactive graphs that display the most recent data, go to EPI’s companion website, Economy Track.
While no single number captures all the nuances in the health of the labor market, the unemployment rate is considered one of the most important economic indicators.
The unemployment rate measures the share of workers in the labor force who do not currently have a job but are actively looking for work. People who have not looked for work in the past four weeks are not included in this measure. It is important to keep in mind that the rate measures the percent of unemployed job seekers in the labor force—the sum of employed and unemployed persons—and not the entire population.
There are several reasons the unemployment rate rises or falls. Although a clear reason is a change in the number of job seekers, the unemployment rate may also be affected by a change in the size of the labor force. When workers become discouraged and stop looking for employment, they leave the labor force. It is common in economic downturns for the labor force to decrease (or increase more slowly than usual) in size as many give up on finding work and are therefore no longer counted as officially unemployed. For that reason, economists often point out that the unemployment rate is misleading and understates the labor market’s weakness. Conversely, during an economic recovery, high unemployment rates can persist despite an increase in jobs as more workers begin looking for work and re-enter the labor market.
Underemployment includes three groups of people: unemployed workers who are actively looking for work; involuntarily part-time workers who want full-time work but have had to settle for part-time hours; and so-called marginally-attached workers who want and are available to work, but have given up actively looking. Together, these three groups provide a more comprehensive measure of slack in the labor market. This measure does not include people who have had to settle for employment below their skill or experience level, such as the mechanical engineer who is driving a cab. There is currently no data that track this form of underemployment.
Compared to other labor force statistics, the underemployment rate is relatively new; the census only began to track underemployment as it is currently measured in 1994. The lack of historical data can make it difficult to put current numbers in context with past labor market performance. Regardless, underemployment’s broader definition of labor market underutilization makes it an important economic indicator.
The Employment-to-Population Ratio is a useful, broad-brush measure. It simply shows the number of people currently employed as a share of the total working-age population, which is the number of civilian, non-institutionalized persons, age 16 and over. This measure does not typically change dramatically from month to month, but even minor changes help identify which segments of the population are experiencing the most job loss or gain.This ratio also compliments the unemployment rate in assessing the health of the labor market. The unemployment rate has shortcomings that the employment-to-population ratio does not. As mentioned above, the unemployment rate is affected by the size of the labor force. As the labor market falters, the unemployment rate may actually fall if workers give up looking for work, and as the labor market is recovering, unemployment can rise because more people are entering the labor force as they start to look for work again. The employment-to-population ratio, because it is unaffected by voluntary changes in labor force participation, is a useful indicator of current labor market conditions. Lows in the employment-to- population ratio correspond with economic downturns. The employment-to-population ratio holds clear and discernible implications for the labor market, both among and between segments of the population.
The Labor Force Participation Rate shows the number of people in the labor force—defined as the sum of employed and unemployed persons—as a share of the total working-age population, which is the number of civilian, non-institutionalized people, age 16 and over. It is similar to the employment-to-population ratio but different in one important aspect: it includes the numbers of people with a job as well as the number actively looking for work.
Month-to-month changes in the employed and unemployed in the labor force are relatively small compared to the size of the entire working-age population. Although minor changes in the labor force participation rate can be informative, it is often used to study long-term trends among different segments of the population. In 1973, for example, women had a 46% participation rate while men were near 80%. In the three and a half decades since, women have seen steadily increasing labor force participation, nearing 60% in 2007. Male labor force participation, on the other hand, has been decreasing, nearing 70% in 2007.
Comparing different segments of the population helps show where the labor market succeeds or fails in incorporating the working-age population.
Payroll employment is taken from the Current Establishment Survey, which, unlike the household-based Current Population Survey used to track the indicators described above, is a survey of employers. For this reason, the data is examined largely by industry, rather than by demographic subgroups of the population, showing the number of jobs in different sectors of the economy. Total nonfarm employment is the total number of jobs, part time or full time, in non-farm establishments. Total private employment excludes jobs in federal, state, and local government. In order to compare between different time periods, the change in payroll employment is indexed to a benchmark. The number of jobs in the economy has grown substantially over time as the population has expanded, and losing or gaining 100,000 jobs in 1970 has a different impact than losing or gaining 100,000 jobs in 2000. This index shows the percentage change in jobs from any point in time and provides a way to compare payroll changes at different points in time.
The number of job seekers per job opening is another indicator of the strength of the labor market. It is the ratio of unemployed persons—those workers who do not have a job but are actively looking for work—to the number of job openings. Data on unemployment are from the Current Population Survey. Job openings are measured in the Job Openings and Labor Turnover Survey (JOLTS).
The JOLTS series is very new, with the data only available since the year 2000. The lack of historical data makes it difficult to put recent numbers into a larger context. However, it remains an important indicator that measures the number of unemployed people in relation to the availability of new jobs, and offers a sense of how easy or hard it is to find employment at any given time.
Gross domestic product (GDP) measures the mark
et value of all goods and services produced in the United States. Many would consider GDP to be the most important measure of a nation’s economic performance. Generally speaking, national economic performance is considered strong if GDP is rising but weak if GDP is falling. When defining a recession, the National Bureau of Economic Research closely looks at the length and magnitude of GDP decline.
As an economic indicator, GDP is unrivaled in its comprehensiveness, but it nevertheless has significant shortcomings. It places paramount importance on the quantity, but not the quality, of growth. It also fails to capture the distribution of economic growth or the sustainability of growth. For example, the housing bubble was captured as a pure economic gain. Residential investment including the building of new homes and home renovations surged to historic highs, but the overinvestment in homes eventually caused a deep recession that has left in its wake thousands of empty, unused houses. This GDP growth was unsustainable. Moreover, the 2001-07 business cycle was the first expansion on record where the typical family did not see a rise in income: median household income over this period was essentially flat even as GDP rose. This combination of overall growth and flat median incomes necessarily implies rising inequality between the country’s top earners and everyone else, but that disparity was not reflected in GDP, which grew steadily during this time.
GDP has four major components. Personal consumption expenditure measures the market value of goods and services consumed by individuals. Gross domestic private investment includes the value of new residential investments, non-residential investment in structures and equipment, and the change in the value of business inventories. Net Exports are defined as the value of exports less the value of imports. Government consumption expenditures and gross investment includes government spending on goods and services; this spending, however does not include transfer payments (such as Social Security), which are captured in other components of GDP, such as consumer spending.
In order to compare between different time periods, the change in GDP, much like payroll employment explained above, is indexed to a certain benchmark. This index provides the percentage change in GDP from any point in time and gives a way to compare GDP changes at different points in time.
Capacity utilization measures the share of industrial capacity in the United States currently in use. It is one of the chief measures of the output gap, or the difference between how much the country is producing and how much it could be producing. For a simple example, if there were 100 factories in the United States, and only 50 were open and operating, capacity utilization would be at 50%. The Federal Reserve, when calculating the monthly measurements, provides more detail than whether a factory is open or closed.
The optimal capacity utilization rate is not 100%; that would imply every factory in the nation running flat-out, day and night. A more reasonable “target” capacity utilization rate is either the long-run average of the last 40 years (80.5%) or the average prevailing in non-recessionary years during that time (81.0%).