Employment Data: Is the Economy Healthy?

This series of lessons will introduce you to economic data that economists use to assess the health of the economy. You will learn about economic data and what they communicate about the health of the economy. This lesson focuses on changes in the level of employment, average weekly hours worked, and average hourly earnings. These are important data for analyzing the health of the broader economy.

ESSENTIAL QUESTION: What do employment data say about the health of the economy?

This lesson is part of a series that asks students to assess the current health of the economy by examining current economic data. This lesson focuses specifically on Payroll Employment data provided by the Bureau of Labor Statistics, and available on the St. Louis Fed’s FRED data website. Payroll Employment data are among the most watched economic data because they indicate whether the economy is growing fast enough to generate enough jobs for job seekers. Students will learn what Payroll Employment data measure, what the current data are, and then discuss what these data reveals about the broader economy. In addition, students will also examine average hourly earnings and average weekly hours worked.

•       Examine the most recently reported Payroll Employment data.

•       Explain the relationship between labor market data and the unemployment rate.

•       Explain the relationship between labor market data and the broader economy.

•       Analyze data on average hours worked and average hourly earnings.

• Activity 1: Analyzing Payroll Employment Data
• Visual 1: Key Facts about Payroll Employment Data
• Payroll Employment Data Dashboard
• Making Sen$e with Paul Solman: Weak job growth, unemployment drop signal 'unwinding' of labor participation (video) 
• The Economic Lowdown video series: The Labor Market (run time 5:22, optional)

1.     Ask the students if they have been to the doctor for a health check-up recently. Remind students of the routine: A nurse likely started the process with some routine tests to collect information – perhaps she strapped a band around your arm and pumped it full of air to test your blood pressure. Then she might have taken your temperature, looked in your ears and eyes with a light, and tested your reflexes with a small hammer. 

2.     Ask the students why all of this was necessary. Students might suggest that the nurse is collecting information about how your body is functioning. Tell students that this process is “data collection.”

• The nurse collected relevant information on your health to be assessed by the doctor. The initial data check helped the doctor identify potential problems – determining if there were any data that seemed out of order.
• If everything checked out, the doctor likely gave you her assessments, maybe some advice on eating healthy and exercising, and bid farewell until your next appointment.
• If, however, the data showed some irregularities, the doctor likely asked for further tests – collecting more data to observe.
• Many times the doctor’s diagnosis requires treatment – prescription medicines or even surgery.
• All of this is meant to check the state of your health, and if it is needed, to use treatment strategies to return you to health.

3.     Tell the students that the economy, like the human body, is extremely complex. And like the body, most times the economy functions very well on its own. However, there are times when the economy suffers maladies such as recessions, or periods of high inflation that require treatment. And like the body, early detection of potential problems will prevent more serious issues and will likely mean less invasive treatment.

4.     Tell the students that economists use economic data to assess the health of the economy.  And economists use economic data to assess whether treatment is necessary.

5.     Tell the students that Payroll Employment data are among the most watched economic data because they indicate whether the economy is growing fast enough to generate jobs for job seekers. The actual data series as measured by the U.S. Bureau of Labor Statistics (BLS) is “All Employees: Total Nonfarm Payrolls.” Note the two parts of the phrase. First, it is “nonfarm”—it includes about 80 percent of workers in the economy, but excludes some workers such as farmers. Second, a company’s “payroll” includes the workers it employs and the amount each workers is paid.  As such, Payroll Employment data are a key economic indicator of the health of the labor market and the economy more generally.

6.     Display Visual 1: Key Information about Payroll Employment. After reviewing key information, ask students to summarize reasons economists might use the Payroll Employment data to assess the health of the economy. Emphasize that an increase in Payroll Employment from month to month means that more people are employed, which is an indication the economy is expanding, or growing. On the other hand, a decrease in Payroll Employment from month the month means that fewer people are employed, which is an indication the economy might be contracting.

7.     Give each student a copy of Activity 1: Analyzing Payroll Employment Data. Tell the students that they will record the key aspects of Payroll Employment as you progress together through the lesson.

8.     Ask students to guess how many jobs the economy created last month. Show the Payroll Employment Economic Data Dashboard . Tell students that the dashboard has key data that will be used to assess the health of the economy.

9.     Refer students to Box 1, which contains a graph of Payroll Employment going back to 1939.

• Ask students to describe the general shape of the curve since 1939. [Upward sloping.]
• Tell students that the shaded areas identify recessions. A recession is a decline in the rate of national economic activity, usually measured by a decline in real GDP for at least two consecutive quarters (i.e., six months). Ask studentts to describe what often happens to Payroll Employment data during recessions. [Payroll Employment decreases.]

10.  Refer students to Box 2 and tell the students that this box gives the most recent release in thousands. Ask students to state the actual number on Activity 1: Analyzing Payroll Employment Data. [Emphasize that the data release omits the last three zeros to save space, and students must add them back in to answer correctly.]

11.  Tell the students that while this information is useful, it is more useful to know if the total number is increasing or decreasing. Tell the students that Box 3 expresses Payroll Employment as a change in employment from the previous month, expressed in thousands of persons. The graph shows the last 10 years of monthly data. Hint: clicking on the graph will result in a better view.

•       Tell students to compare the monthly numbers to the horizontal line at zero. A monthly bar that rises above zero indicates an increase in employment from the previous month. A monthly bar that falls below zero indicates a decrease in employment from the previous month.

•       Remind students that the shaded areas identify recessions. Ask students to again describe the relationship between Payroll Employment and recessions. [Payroll Employment is often negative during recessions]

•       Ask students if a decrease in Payroll Employment always indicates a recession. [No, there are months where employment decreases that are not considered recessions.] 

12.  Refer students to Box 4. Ask students to record the most recent of Payroll Employment data (expressed as the change from the previous month) on Activity 1: Analyzing Payroll Employment Data.

13.  Economists are quick to remind people that one piece of data is not a trend. Ask students to record the last six months of Payroll Employment data from Box 6. Based on the data and the graph in Box 3, is there a trend? Ask students to record their analysis on Activity 1: Analyzing Payroll Employment Data.

14.  Tell students that there are two other parts to this data release – average hourly earnings and average weekly hours. While not as telling as the change in employment, both are important indicators of the health of the economy.

15.  Refer students to Box 7. Ask students to describe the shape of the line on the graph showing average hourly earnings. Then examine the data in Box 8. Ask students if the data are relatively stable (the line is fairly smooth, like a car driving on a flat highway), or if it is volatile (the line moves up and down, like a car riding on a roller coaster). [It is more stable than the related data.]

16.  Refer students to Box 9. Ask students to describe the shape of the line on the graph showing average weekly hours and its related data.

•       Is there a relationship between hours worked and recessions?

•       What is the recent trend?

17.  Ask students to examine the hourly wages data in Box 10. Ask students if these data are relatively stable, or if they are volatile. [They are more stable than the related data such as the monthly change in employment.]

18.  Remind students that not every number pertaining to positive jobs is accepted as good news. As the labor force grows, new jobs must be created just to maintain the status quo.

•       Show the first three minutes of this video clip.

•       Ask students why analysts were disappointed by the news that 70,000 jobs were added. [They hoped that 300,000 jobs would be added that month.]

•       Emphasize to students the warning given in the video – don’t put too much stock in one month’s number.

•       When this video was made, how many estimated jobs had the economy averaged (seen as keeping pace with population growth)? [182,000 per month.]

•       What reasons help explain the smaller-than-expected number? [Weather may have affected employment, especially in construction.]

19.  Discuss key content with students to ensure they understand what the Payroll Employment data reveal about the health of the economy. Ask the students to describe their assessment and defend it using data. Emphasize that Payroll Employment data that are increasing from month to month implies that more people are employed, which generally indicates a growing economy. Payroll Employment data that are decreasing from month to month implies that fewer people are employed, which can indicate an economy that is contracting. 

Payroll Employment data are among the most watched economic data because they indicate whether the economy is growing fast enough to generate enough jobs for job seekers. Comparing the level of employment from month to month is useful evidence in determining whether the economy is healthy. Considering average hourly earnings and average weekly hours worked provides additional detail.

FRED data is likely available for your state, county, and Metropolitan Statistical Area (MSA). For example, click the following links to examine economic data about Minneapolis, MN. Use FRED to find data about your local economy, and write a short economic report about the state of the local economy. Start by entering the name of your city, county, or state in the search box on this page.

https://fred.stlouisfed.org/graph/?g=cLRY

https://fred.stlouisfed.org/graph/?g=cLRZ

https://fred.stlouisfed.org/graph/?g=cLRV

https://fred.stlouisfed.org/graph/?g=cLS2

https://fred.stlouisfed.org/graph/?g=cLYy

In general, what is the relationship between Payroll Employment data and the health of the economy?

A.     When Payroll Employment rises, the economy is likely growing.

B.     When Payroll Employment falls, the economy is likely growing.

C.     When Payroll Employment rises, the inflation rate will likely fall.

D.    There is no relationship between Payroll Employment and the economy.

In general, what is the relationship between Payroll Employment and the unemployment rate?

A.     When Payroll Employment rises, the unemployment rate rises.

B.     When Payroll Employment falls, the unemployment rate falls.

C.    When Payroll Employment rises, the unemployment rate falls.

D.    There is no relationship between Payroll Employment and the unemployment rate.

Payroll Employment data estimates:

A.     The amount of total income that U.S. employers are paying their employees.

B.     The number of people in the U.S. labor force who are not employed, yet actively seeking employment.

C.     The percentage of the U.S. labor force that is employed.

D.    The number of workers that U.S. firms employ and send paychecks to every month.