Unemployment, as economic indicator displays the amount of job seeking individuals who remain unhired in percentage rate to general labor force. According to data provided by Bureau of Labor Statistic, the most current rate of unemployment was established near the number of 9,1%. It is interesting that analyzed indicator was doubled after the recession began in December 2007.
Speaking frankly, announced level does not suggests much to future economy. An unemployment rate always takes a part of consequence, not a cause. As it was noticed, the rate of unemployment was doubled after the recession began. Recession as a period of general economic decline is determined by next main positions: drop in stock market, decline in GDP and growth of unemployment rate. In this regard, unemployment is not about the future of economy to suggest something. It’s growth is used to confirm to the trend towards recession that began at the end of 2007. In other words, unemployment is retrospective indicator. Widely adapted classification of economic indicators involves three general items – Leading indicators, Coincident indicators and Lagging indicators (Filkovich). In its turn, the unemployment rate refers to the last type. Previous statement is central to talk about unemployment rate as some kind of predicting index. As any other lagging indicator, unemployment follows economic events and appears just after some change in business cycle was completed. The interconnection between economic events and unemployment is pretty clear. A downsizing is always the last measure for employers to response negative economic effects. It is the main signal that economy is in decline. In addition, it is important to remember that unemployment rate may rise even when economy has started to improve. This fact is based on employers wish to be sure that economy recovered finally, before they start to hire people again (Amadeo).
Being clear that unemployment level always follows events in economy, we are encouraged to state that this indicator can be used to find the economic trend, to confirm some events and to take a retrospective look. All these functions are inherent to Lagging indicators. In this order, it is quite unreasonable to state that unemployment level is reliable indicator to forecast changes in business cycle. Business cycle is irregular but periodic and up-and-down movements in economic activity for certain period of time. The unemployment level is useless to forecast changes in business cycle. However, analyzed indicator has one derivative item. There is the talk about average weekly initial claims for unemployment insurance. This point is extremely useful to forecast the future economy and changes in business cycle obviously. On one line with stock prices, building permits and index of consumers’ expectations, average weekly initial claims for unemployment insurance belong to Leading economic indicators, which were already mentioned in the beginning. It worth being mentioned that these leading indicators are known as predicting ones. Thereby, they are primary and take main part in economic forecasting.
Amadeo, Kimberly. “Lagging indicators”.About.com. 2011.Web. 27 Sep. 2011. http://useconomy.about.com/od/glossary/g/Lagging_Indicat.htm
Filkovich, Mike. “Economic indicators”.Wikicfo.com. 2010. Web 27 Sep 2011. http://www.wikicfo.com/Wiki/Default.aspx?Page=Economic%20Indicators&NS=&AspxAutoDetectCookieSupport=1
Labor Force Statistics from the Current Population Survey.Bureau of Labor Statistics.2011. Web. 27 Sep 2011. http://www.bls.gov/cps/lfcharacteristics.htm#unemp