Jobless Claims Jump, Durable Goods Orders Up

The durable goods news can be a teachable moment. While the aggregate is up, the adjusted figure excluding transportation is down.

 Jobless Claims Jump Again 

The number of U.S. workers filing new claims for jobless benefits unexpectedly surged last week to the highest level in over three months. Separately, durable-goods demand soared 3%.

CPI and Core CPI

As expected, the markets didn’t seem to react to the Fed’s move to lower the discount rate yesterday.

Today’s news about the CORE CPI is a good opportunity to teach students about the difference between the rate of inflation and the core rate (the overall rate minus the volatile food and energy sectors).

From CCEE’s Teacher Guide to the Standards
With price data such as the CPI, an attempt to study long-term trends will be misleading if extremely volatile items are included in the survey. To minimize volatility, a “core” index which excludes the volatile food and energy sectors is calculated. Similarly, orders for durable goods are reported along with durable goods orders “excluding transportation and defense orders” since these components tend to “lumpy” and distort the trend.


From the Wall Street Journal
__________________________________
News Alert
from The Wall Street Journal

U.S. consumer prices rose 0.2% in January from the previous month, the same increase as in December 2009. But core prices, which strip out energy and food items and are more closely watched by the Federal Reserve, fell by a monthly 0.1% in January. The last time core prices fell was in December 1982. The drop leaves scope for the Fed to keep supporting the economy with record-low interest rates.

http://online.wsj.com/article/SB10001424052748703787304575075052818196106.html?mod=djemalertNEWS

This Just In!

It will be interesting to see how the markets respond. Since this is a “widely expected” move, it shouldn’t have much effect. However, the January Consumer Price Index will also be announced tomorrow, so it could be difficult to separate the impact of the two events.

The Wall Street Journal

The U.S. Federal Reserve Thursday raised the rate it charges banks for emergency loans by a quarter percentage point, but emphasized that the step didn't represent a broader tightening of credit.

In a widely expected move, the U.S. central bank said the increase in the discount rate to 75 basis points from half a point was part of the Fed's steps away from its emergency-lending efforts. The increase will be effective from Friday.

"Like the closure of a number of extraordinary credit programs earlier this month, these changes are intended as a further normalization of the Federal Reserve's lending facilities," the Fed said in a statement.

http://online.wsj.com/home-page?mod=djemalertNEWS

Credit Tightening

 

News Alert

from The Wall Street Journal

Timing could be everything for Bernanke’s “exit strategy.”

Jim

From the WSJ.

U.S. Federal Reserve Chairman Ben Bernanke outlined how the central bank may tighten credit once the economic recovery has taken root.

In prepared testimony, Bernanke said the interest rate paid to banks on excess reserves held at the Fed may for a time replace the federal-funds rate as the main policy target. Raising the excess-reserves rate, which currently sits at 0.25%, would give banks an incentive to park more funds at the Fed instead of lending to companies or households. That could help restrain an overheating economy and reduce the risk of inflation.

http://online.wsj.com/article/SB10001424052748704140104575057160496102900.html

Resources from EconEd Link

You'll find the new lesson titled, "Focus on Economic Data: Federal Reserve and Monetary Policy, January 27, 2010," at:

http://www.econedlink.org/lessons/index.php?lesson=896&page=teacher&utm_source=newLessons&utm_medium=email&utm_campaign=lessons20100209

This lesson focuses on the January 27, 2010, press release by the Federal Reserve System's Federal Open Market Committee (FOMC) on the current Federal Reserve monetary policy actions and goals. This lesson is intended to guide students and teachers through an analysis of the actions the Federal Reserve is taking and can take in influencing prices, employment, and economic growth. Through this lesson, students will better understand the dynamics of the U.S. economy, current economic conditions and monetary policies.

Concepts you'll cover include Central Banking System, Federal Reserve, Federal Reserve Structure, Monetary Policy, Open Market Operations

As always, you'll find even more free lessons at http://www.econedlink.org/. Thank you for making 'EconEdLink.org' a part of your classroom.

From the WSJ

U.S. Payrolls Slide;
Jobless Rate at 9.7%

http://online.wsj.com/public/page/news-economy.html

A great teachable moment. Because of the way that it is measured, the unemployment rate itself is not a great indicator of the strength of the labor market. The fact is that we lost 20,000 jobs last month. Some good news within the report however. Manufacturing employment increased, and average number of hours worked per week increased. This usually portends new hires.

Two other things to consider in evaluating the report.

• “The January report was influenced by several special factors that may not be consistent with the underlying jobs trend. Temporary hiring for the U.S. 2010 census collection helped the employment picture in January, while the unusually cold weather probably hurt it.”

From CCEE’s Teacher Guide

The consensus is that everyone who is willing and able to work should be able to find a job. Next to the GDP, employment is the most watched report. The report is composed of two surveys, the Household Survey and the Establishment Survey. Together, these reports present a picture of the employment situation in the economy. Employment affects income, consumer spending, and wages; this information is essential in estimating where the economy is and where it is going. The unemployment rate is reported in the Household Survey. The Bureau of Labor Statistics call about 55,000 households and ask them specific questions to determine their employment status. Once the data is collected, the unemployment rate is calculates.

The labor force consists of all people between the ages of 16 and 65 who are either working or actively seeking work. To be counted in the labor force, a person must be 16 years or older, working, or available and actively seeking work. So the unemployment rate is simply:

number of people unemployed
total number of people in the labor force

[Caution: when talking about unemployment is important to emphasize that the calculations only include the number of people actively looking for work divided by the number of people in the labor force, not everyone in the population.]

There are many problems with using this measurement as an indicator of the strength or weakness of the labor market. A mother who wants to work but can’t afford daycare would not be considered part of the labor force. Part time workers who are looking for a full time job are considered employed. And there are many more idiosyncrasies that make the unemployment rate less than ideal as an indicator of how the economy is doing.

Another number that indicates the strength or weakness of the labor market is the change in nonfarm payroll employment. This information is taken from the Establishment Survey. Each month, about 300,000 establishments, employing about one third of all payroll workers, submit their reports to the Bureau of Labor Statistics. In addition to the change in employment, the report also includes average workweek, average hourly earnings, and overtime

When economists talk about full employment, they don’t mean that 100% of the labor force is employed. If this were the case, no one would be changing jobs. At any point in time, some people will be out of work because they are moving to a better job. This type of unemployment is called frictional unemployment and it is not considered a problem because it is an indicator of people moving to better jobs.

An activity to teach about the unemployment rate

Queen for a Day

1. You are a Migrant farm worker, and you usually don't have any trouble finding work in season. You worked last week, but this week and the next three weeks, you will be waiting for the strawberry crop to come in. You have some cash and no family so you'll be alright, but you'd sure like to earn some money. Trouble is, you don't know how to do much except to pick crops. (Not unemployed since non-work is a result of weather.)
2. I am an army officer leaving the service after 18 years. I have already secured a new job as a teacher, but it won't be starting for two months. In the meantime, I plan to take my family and tour the U.S. I have plenty in the bank. (Unemployed - frictional)
3. You are a discouraged worker, you have been looking for any type of work in all sections of the town for over 3/4 of the year. You have a wife and two kids and no job. Your home is filled with tension, anxiety and anger. Every time you walk in the door, your wife starts yelling at you "where is the food for the children?" You give up completely and decide to be a wine‑o for the rest of your life. Or maybe a beggar. You might stow away on a plane and fly off to a desolate island, where you don't have to find jobs ‑ you just pick bananas off the trees! (Not in the labor force, therefore, not unemployed)
4. You are twenty years old and zipped through high school the easiest way you possibly could. You never took a single class you didn't have to and you hardly ever went to the ones you did take. For the past two months you have been "thumbing" around the country. You once worked in your mother's office. She fired you after three months at your request. (Officially unemployed)
5. You are a house husband. Your wife is director of research for IBM making $400,000 per year. You are sick and tired of staying home, cooking, cleaning, washing and taking care of her every whim when she gets home at night. Although you can't type or take shorthand, you begin searching for a position as an executive secretary. You will settle for nothing less than $60,000 per year. After all, a man of your looks and personality is worth it! (Officially unemployed)
6. I am a part‑time maid who works only five hours a week. I really need full‑time work. My wife needs an operation to cure an eye condition which is preventing her from working. (Employed)
7. You are a sixty‑eight year old man and you desperately want to work. You are very healthy and your mind is still sharp. Your poor late wife is dead and your only child died at the ripe old age of ten from an exotic tropical disease. You hate soap operas and staying idly at home. Property taxes are going up and you have no one to take care of you as you get older. You have some savings but you'd like to earn some money. You know you could still do good work, if you could only find a job. Everywhere you go those young whipper snappers say "you are a little on the old side sir, we just don't have anything for you today; oh and by the way, don't call us, we'll call you." (You hate the youngsters now‑a‑days.) (Probably not in the labor force so not unemployed)
8. You are a widowed mother of four. Your husband left you with no assets and no insurance. Your children are all under five years old. You have never held a job, you have a high school education but don't know how to do much outside the home. Any job you found would have to pay enough for a pretty good babysitter. The rent is due in two days and you have no groceries. (Not in the labor force, not available for work, not unemployed.)