Unemployment is up!  Unemployment is down!  Jobs are available everywhere!  There are no jobs!

If you watch a financial news channel for more than 10 minutes, you are reasonably sure to hear and see each of these topics offered – sometimes by the same commentator!  How can that be?  Are there jobs available or not?  Is there a reliable unemployment “rate” which can be used to gauge the health of the U.S. economy?

Let’s start with actual numbers, released monthly by the Bureau of Labor Statistics (“BLS”), which is a division of the Department of Labor.   In March of 2012 the “Nonfarm payroll employment rose by 120,000… and the unemployment rate was little changed at 8.2%…”  Many economists suggest that if the US economy could add 225,000 new jobs each month, then the unemployment rate would start to decline.  That’s because approximately that same number of new workers enter the jobs market each month.  If more jobs are created, then those new workers are absorbed and the unemployment rate drops.  If fewer jobs are created, then the unhired new workers are simply added to the unemployment rate and it rises.

Predictably following the BLS report’s release, incumbent politicians pointed to prior months’ reduction in unemployment, while political aspirants pointed to the failures of the incumbents as the cause of the employment malaise.  Whom to believe?

We’ll need to dig a bit deeper here in the BLS reports to find the truth, especially as it applies to you, the reader.  In another news release, the BLS describes how the numbers are actually calculated.  For example, while in March the net number of new jobs was 120,000; several million Americans lost their jobs while several million Americans were hired.  If you lost a job and were hired into another job in March, you were counted in both categories! 

The BLS has a hard time keeping all of the statistics right up to date, so the category I’d like to discuss is only updated to the end of February, 2012.  The key terms here are “hires” and “separations.”   If you started a new job, you were in the former category; if you lost your job, retired or voluntarily terminated, you were in the latter category.  In February alone there were 4,385,000 hires and 4,092,000 separations.  Thus, the employment growth in February was a positive 293,000.  The media focuses on the net number, but I’d suggest that we really should be focusing on the components.  If 4.4 million Americans started a job in February, then there must be a lot of jobs out there. 

In the same report, the BLS outlines the Net Change in Employment – “Large numbers of hires and separations occur every month throughout the business cycle.  Net employment change results from the relationship between hires and separations.  When the number of hires exceeds the number of separations, employment rises, even if the hires level is steady or declining… Over the 12 months ending in February 2012, hires totaled 50.6 million and separations totaled 48.6 million, yielding a net employment gain of 2.0 million.”  Note the hires figure above – over 50 million new jobs in the past 12 months!

What if you or someone close to you is having trouble finding a job?  There was a recent New York Times article with some interesting thoughts.  Commenting on the March employment report referenced above, Michelle Girard, senior US economist at the Royal Bank of Scotland remarked “Many companies contend that they would hire more if only they could find more skilled workers.  Other workers are unable to move for a new job because they are stuck in homes that are worth less than what they owe on their mortgages.” 

Think about the combination of those two major points – if there were more than 50 million new jobs in the US in the past 12 months, and if Ms. Girard is correct that employers would hire even more Americans if they could relocate or improve their skills, is there a job out there just waiting for you?

Good luck!


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According to the United States Commerce Department, our economy expanded at an annualized 3% rate for the final three months of 2011.    The “estimate” was for a growth of 2.8%, so the actual number was slightly better than the estimate.  For comparison, the US economy grew at a rate of 1.8% in the third quarter, which measures July to September.

You might ask “so what”?  How does GDP or the Gross Domestic Product affect me and my savings?  Let’s first define GDP and what it means, then discuss how each citizen might benefit from growth.

GDP is measured in three different ways, each of which theoretically should give the same result.  We’ll focus on the Expenditure formula, which is based upon the idea that anything which is produced must ultimately be purchased by someone (consumer, government, corporation) and so if you just add up all of the purchases, you’ll have the total value that the United States produced during a given time period.  The formula is GDP = private consumption + gross investment + government spending + (exports − imports).   Private consumption is individuals, families and corporations; basically anyone who isn’t the government.  This category includes groceries, rent, medical services, legal services, and gasoline.  Gross Investment includes new factories, new technology purchases such as software and computers, and strangely, new homes for consumers.  An important note is that “investment” is not purchasing stocks and bonds.  What we might think of as traditional investing is instead categorized as “saving” for GDP calculation purposes.  This makes sense when you think about it – if GDP counted both then when you or I buy stock in a company like Google which then takes that money and buys new computer servers (which are counted as “investment”), the same dollars would be counted twice.

“Government spending” is an easy one to understand, it represents any government expenditure, from new roads to school teacher salaries to new boots for military personnel.   Finally, gross exports are everything that we produce here that’s ultimately sold in another country.  GDP subtracts imports from exports (hence the term “net imports” since we import more than we export) and arrives at a total figure including all of the categories.  Then the Commerce Department “seasonally adjusts” the figures, arriving at its best guess for what happened in the time period being measured.

Wow – are you still there?  If so, thanks for hanging on.  Trust me; the actual Commerce Department URL is much more technical, so if you’d like to really dig in, the source is below.  On to the big question: “how does GDP growth or contraction affect me”?  Maybe an example would help.  Assume that there are only 100 people in the United States, and 90 of them are employed at McDonald’s.  10 people are unemployed, resulting in a 10% unemployment rate.  What if everyone, in a particular time period, went to McDonald’s and bought not only their regular meal, but added an ice-cream sundae.  For the sake of this example, assume that the sundae increases the cost of the average meal from $10.00 to $11.00, a growth of 10%.  If McDonald’s is the only employer in the country and everyone who is employed works there, then the GDP growth rate for that time period would be 10%.  Now imagine that you’re the manager.  You could sell more meals and sundaes if you added just 3 more workers so you could stay open later at night, and you might also pay your current employees a bit more since your profits probably increased with the growth in sales.  So, in my very simple example GDP growth translates directly to increased employment and higher wages.

In the real world, GDP growth and its effect on you and your savings aren’t as direct, but it’s close.  As the economy grows, business owners hire more employees and pay their current employees more so that they don’t leave for another company.  That means that more Americans have jobs and those who already had jobs make more money. 

GDP matters!  Don’t let the constant restatements get in your way of understanding the general trend – growth is good!  By the way, when you earn more you don’t necessarily have to spend more.  Please consider saving more so you can retire someday.  See my other blog posts on this topic.


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Here We Go Again …

by macromikeJanuary 27, 2012

Are you confused about the situation in Greece regarding the repayment of the government’s debt obligations?  Any idea what the difference is among the International Monetary Fund (“IMF”), the European Stability Mechanism (“ESM”), and the European Financial Stability Facility (“EFSF”)?  I’m getting a little dizzy trying to figure it out myself, so let’s start with [...]

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by macromikeJanuary 5, 2012

Debt?  Everyone knows what debt is – you borrow money and you owe it back.   You might borrow as an individual, from a bank, a friend or a family member.  You might borrow as an entity, such as a homeowners’ association replacing a playground and paying for it over time via a bond issued to [...]

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How Will I Ever Save Enough to Retire?

by macromikeDecember 27, 2011

Remember the commercials during the Super Bowl last year which extol the virtues of saving money?  My favorite is the baby who appears to be talking in an adult voice, who says “I was going to buy expensive electronic gadgets with my birthday gift money, but I decided to create a long-term savings account instead.” [...]

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Supreme Court Decides Health Care?

by macromikeDecember 21, 2011

There have been many, many articles recently regarding the November 14th decision by the United States Supreme Court agreeing to review a key component of the Affordable Care Act.   A recent article in the New York Times discusses this odd turn of events, specifically the legal requirement under the Act for all Americans to be [...]

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Occupy Wall Street? Why Not “Occupy Main Street”?

by macromikeOctober 19, 2011

A recent article in the New York Times addresses some of the issues raised by Occupy Wall Street (“OWS”).  The author, Nancy Folbre, is not only a good writer but is also a professor of economics at UMass Amherst.  She outlines many of the themes we’re heard associated with OWS for the past month, such [...]

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A Financial Advisor is Critical to Your Retirement

by macromikeSeptember 6, 2011

Do you need a financial advisor?  A recent article by Jason Zweig of the Wall Street Journal “Too Flustered to Trade”:  A Portrait of the Angry Investor” cites several statistics from research by Decision Research in Oregon. This research was an online survey in which respondents answered questions between August 9th and 15th of this [...]

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How Does Federal Reserve “Intervention” Affect Your Retirement?

by macromikeSeptember 1, 2011

According to Bloomberg.com, the Federal Reserve doled out $1.2 trillion (that’s trillion with a “T”!!) to banks and other companies during the recent financial crisis.  “The emergency loans were intended to help recipients cope with cash shortfalls and keep the credit markets from grinding to a halt.” As you can see from the attached graph, [...]

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Does the United States Credit “Downgrade” Affect Your Retirement Planning?

by macromikeAugust 17, 2011

Credit Downgrade – what does that mean and why do you care? With the 2012 US presidential election season underway, there is plenty of media coverage of macro events affecting the US economy, such as the debt ceiling debates (aren’t you glad that’s over?), the slowdown in the US economy, and the actions by the [...]

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