ECON 2210-001 Principles of Macroeconomics
Tuesday-Thursday, 12:45pm-2:05pm, Sam Wilson Hall, Room 302
For Your Information (FYI) Links for Fall 2017
Over the span of a single month, the federal government will publish statistics on all the major indicators that describe the macroeconomy. This FYI section will look at the three most important. The first to be published is the labor market situation which usually appears on the first Friday of the month. The second indicator covers consumer prices and the inflation rate. This report is published in the middle of the month. The last report is on national income and production, and is released near the end of the month. Match the information in these reports with the material and data in chapters 8 and 9 in our textbook.
October 13 FYI: September U.S. Consumer Prices
On October 13, the U.S. Bureau of Labor Statistics (BLS) released their report covering the September Consumer Price Index (CPI). This report is issued each month in the middle of the month, and covers the preceding month. To see the report, go to the BLS webpage at http://www.bls.gov/. Put the cursor on “Subjects” then move to “Consumer Price Index” and click. You are on a page headlined “Consumer Price Index”. Go to “CPI News Releases” on the left and click. On the news releases page, go to the PDF link for the CPI News Release.
The report begins with a news release with summary charts. Chart 1 shows the monthly percent change in the CPI, while Chart 2 shows the annual inflation rate for the “All items” index and the “Core rate” index (with food and energy prices removed). The data tables follow the news release. The September report is 38 pages long.
Go to Table 1 on page "9 of 38" and look at row 1 which is labeled "All items”. The percentage changes in the “all items” index are reported by the media to show the inflation rate. This index is also used for indexing to eliminate the effects of inflation. For example, the "All items" CPI is used to adjust your federal personal income taxes for inflation -- such as deductions, exemptions, and the upper and lower levels of tax brackets. As inflation occurs, the dollar value of these items will be adjusted upwards.
Under August 2017 and September 2017 you will find the CPI values for the last two months. These are the actual ("unadjusted") values and are the final values -- they will not be revised. The CPI values are an index, and show the level of current prices compared to an arbitrary base period. The base period is the three year period 1982 to 1984. That is, if you took the 36 monthly CPI values for 1982 to 1984 and averaged them, the average would be equal to 100.0. (It is usual to round off the index numbers to one decimal point.)
The CPI unadjusted value for September 2017 is 246.8 which means that consumer prices have increased 147% since the base period of 1982 to 1984. This comparison is not very useful! Instead, the table shows you the year-to-year change since September 2016 which is 2.2%, while the change since the previous month (August 2017) is 0.5%.
The CPI values in Table 1 are not adjusted for seasonality so the comparison of September with August is also meaningless. To make month-to-month comparisons, we need to use CPI figures which are adjusted for seasonality. The last three columns of Table 1 show the percent changes by month-to-month in the seasonally adjusted CPI. (The monthly seasonally adjusted CPI index values are no longer included in the monthly reports.) The percent changes in the seasonally adjusted CPI values are the figures reported and analyzed in the media.
Now look down the rows in Table 1 and see the broad categories of consumer goods and services prices. The first column in the table "Relative importance, Aug 2017" tells you how important the category is in the overall market basket for the "All items" index. For example, the "Foods” category is equal to 13.643 percent of the "All items" index. The next large category is “Energy” which is 7.372 percent of the “All items” index. These market basket weights are now revised each month – previously the revisions were annual.
In the middle of Table 1, find the "All items less food and energy" index. This includes 78.985 percent of all the items included in the "All items" index, and it is considered to be a better measure of the core inflation rate in the U.S. economy than the "All items" index. Energy prices are largely set by OPEC and food prices are largely set by the weather, and we have little control over either. The year to year change in this index is 1.7%. (See Chart 2.)
Table 1 is a summary table of the broad categories of consumer expenditures. Table 2 on page “10 of 38” shows all of the detailed expenditure categories. Note that it shows only the share of the market basket and the percent changes in the unadjusted and adjusted prices. The actual CPI values are not included in the monthly report. This table is eight pages of small print.
Find “Educational books and supplies” on page “14 of 38”. Note that your books and supplies are 0.161 percent of the “All items” index and that these prices have fallen 1.6 percent in the past year (compared to an increase of 2.2 percent in the overall index). Look through the report and find some other prices that directly affect your cost of living.
October 6 FYI: September U.S. Labor Market Situation
On October 6, the U.S. Bureau of Labor Statistics (BLS) released their report covering September labor market conditions in the United States. This report is issued each month at the beginning of the month, and covers the preceding month. To see the report, go to the BLS webpage at http://www.bls.gov/. Put the cursor on “Subjects” then scroll down to “National Unemployment Rate” and click. You are on a page headlined “Labor Force Statistics from the Current Population Survey”. Scroll down to the CPS News Releases box to the “Employment Situation Summary” item and click on the PDF link to see the September report.
There is a news release at the beginning of the report which is followed by a group of "A" tables and a group of "B" tables. The "A" tables are the source of monthly data on employment and unemployment, while the "B" tables are the source of monthly data on employment in different industries. The September report is 40 pages long.
The news release part contains the information used by the media. The first page includes two charts (1) on the unemployment rate (from the “A” tables”) and (2) on payroll employment changes (from the “B” tables). Next go to “Summary table A. Household data, seasonally adjusted” on page “5 of 40” for an overview of the labor market data from the “A” tables and the “B” tables.
The "A" tables are based upon the Current Population Survey (CPS) which is sometimes called the "Household Survey". During the second week of each month the BLS conducts a survey of 60,000 households in the United States. These households are selected at random and, for continuity, each household will remain in the sample group for four months, drop out for eight months, and return for another four months. Under this system, 75% of the sample is common month-to-month, and 50% of the sample is common year-to-year.
Go to "Table A-1. Employment status of the civilian population by sex and age" on page "12 of 40". Note the column headings. The first three columns contain the actual data, while the last six columns contain seasonally adjusted data. With the actual data ("not adjusted") the comparisons must be made on a year-to-year basis. The adjusted data can be compared on a month-to-month basis.
Now look at the row headings. The first line is “Civilian noninstitutional population” and is considered to be the potential pool of individuals available for work. The figure includes all adults sixteen years old and above who are not in the military or in an institution (such as prison, etc.). Thus the figure does include full time students, stay at home parents, and retirees. It excludes infants and children.
The "Civilian labor force" is the "Employed" and "Unemployed" figures added together. The "Unemployment rate" -- the number everybody looks at -- is "Unemployed" divided by the "Civilian labor force". The September 2017 actual unemployment rate is 4.1% while the seasonally adjusted rate is 4.2%.
An important ratio is the “Participation rate” which is the actual “Civilian labor force” divided by the potential labor force of the “Civilian noninstitutional population”. Before the Great Recession of 2008-09, this ratio was about 66.5%. In September the actual ratio was 63.0%. The difference of 3.5% represents nearly nine million workers who have left the labor force and have not yet returned.
This general format is used in the "A" tables for different groups. For example, go down to Table A-2 and Table A-3 and find the unemployment rates for White, Black, Asian, and Hispanic groups. In Table A-4, find the unemployment rates for high school graduates and college graduates. Which groups have the highest unemployment rate? The lowest?
Go to Table A-15 on page “27 of 40” and look at the “Alternative measures of labor underutilization.” Compare the official U-3 rate with the more inclusive U-6 rate. The U-6 rate is considered to be a better measure and recently has been about twice the size of the “official” rate.
The "B" tables are based on the Establishment Survey which is sometimes called the “Payroll Survey”. This survey includes 623,000 business and government worksites in the United States, and covers about one-third of all payroll employees. These tables provide the national data on employment by industry.
Go to "Table B-1. Employees on nonfarm payrolls by industry sector" on page "29 of 40". Note the column headings. The first four columns contain the actual data, while the last five columns contain seasonally adjusted data. With the actual data ("not adjusted") the comparisons must be made on a year-to-year basis. The adjusted data can be compared on a month-to-month basis.
Now look at the row headings. The first row is "Total nonfarm" which shows the total employment in all the establishments covered by the report. Compare this figure with the "Employed" number in Table A-1. The CPS based figure is larger than the establishment figure! Why? The CPS figure includes workers in agriculture and the self employed, while the establishment figure excludes these groups.
Look down Table B-1 at all the industry groupings. These groupings are based on the North American Industry Classification System (NAICS) which our government adopted as a result of the North American Free Trade Agreement (NAFTA). At the top of Table B-1 you will find "Goods-producing" which includes mining, construction, and manufacturing. At the bottom of the first page, you will find "Private service-providing" which includes wholesale trade, retail trade, transportation, utilities, information, finance, professional services, education & health services, leisure services, and other services. Government is at the end of the table. The word "services" is used several times in this list. In the first application it refers to all employment that does not produce goods, and includes over 80% of all payroll jobs. In the second application it refers to specific categories. When someone is talking about jobs in "services" you need to find out which term they are referring to.
Finally, browse through the report to see all of the tables and information that are included.
September 28 FYI: Third NIPA estimates for 2017 Second Quarter
On September 29, 2017, the U.S. Bureau of Economic Analysis (BEA), part of the U.S. Department of Commerce, released the third (final) set of National Income and Product Accounts (NIPA) estimates for the second quarter of 2016. The first set of estimates was released in July, and the second set was released in August. Go to the main page of the BEA at http://www.bea.gov/.
On the BEA page, go to the upper center and click "Gross Domestic Product", then on the next page click on the news release "Gross Domestic Product”. On the GDP news release page, look to the right and find “Full Release & Tables (PDF)”. Click on this link to see the full report.
Go to page "6 of 20" and look at Table 1. This shows the annualized percent changes in real GDP since 2014 on both an annual and quarterly basis. Table 2 on page “7 of 20” shows the sources of real growth. Note the decrease in government spending in 2014.
Table 3 on page “8 of 20” shows GDP and its components in nominal and real terms. The nominal (current) values are called “Billions of dollars” and the real values are called “Billions of chained (2009) dollars”. The percent changes in Table 1 are based on the real NIPA figures from Table 3.
Next, go to Table 6 on page “12 of 20” -- the chain price indexes used in the NIPA. Note that the year 2009 is used as the base year (the index will equal 100.000). These price index values are the ratio of the nominal NIPA and the real NIPA values in Table 3. (The previous base year was 2005. The change to the more recent year of 2009 will not alter the percent change profiles in the “real” NIPA time series – it will increase the real dollar amounts due to price inflation between 2005 and 2009.)
Next, go back to page “10 of 20” and look at Table 4 – the rate of price inflation in GDP and its components. These price changes are based on the chain price index values in Table 6. The overall inflation rate for GDP fell from 1.6% in 2014 to 1.1% in 2015, but slightly increased to 1.3% in 2016. This inflation rate covers all of the final goods and services produced in the United States. Finally, browse through the tables in the news release.
To get an idea of the full size of the NIPA tables, we need to go to some back issues of the Survey of Current Business – the BEA monthly data publication. The BEA used to publish the complete NIPA tables in their August and September issues, but now the data is available only on-line.
Return to the BEA main page http://www.bea.gov and click on the Survey on the left. On the left side of the SCB page, click on “Browse by Year” and select August 2012. The Table of Contents page will come on screen. Each article and set of tables is in PDF format.
The third article is “National Income and Product Accounts Tables”. This is the annual NIPA report and it has 146 pages of tables in very fine print! The main heading will link you to an index of the complete accounts. The individual groups of tables are accessed by the links under the article main heading. The summary 2011 accounts are the first link. Browse through the other tables in the report.
Finally, I want you to look at some historical data. Return to the August 2012 Table of Contents page. The fourth SCB article is “GDP and Other Major NIPA Series for 1929 – 2012 II.”. This is 30 pages of historical tables going back to 1929. Let us take a look at the Great Depression of the 1930s.
Go to Table 1 on page “1 of 30”. GDP in nominal terms declined from $103.6 billion in 1929 to $56.4 billion in 1933. Over this four year period (the Hoover Administration), the level of nominal output declined 46 percent. But what about real GDP? Go to Table 2A on page “6 of 30” and see that real GDP (measured in “chained 2005 dollars”) was $976.1 billion in 1929 and $715.8 billion in 1933. The real decline was 27 percent. So a large part of the decline in nominal GDP was due to falling prices.
Finally, compare real GDP during the 1930’s. The economy did not get back to 1929 production levels until 1936 – a period of seven years. The entire decade of the 1930’s is referred to as the Great Depression as a result. After 1940, real GDP doubled over the 1940-45 period due to war production for World War II.