During a recession there are a lot of numbers thrown around, but what do those economic statistics really mean? The recession has made average citizens more aware of the data that's supposed to explain or predict the financial health of the country, so it's important to know where the numbers come from and how to evaluate them. Below are some of the most quoted statistics and how they are calculated. (For more info on what to do during a recession, read 4 Ways To Weather An Economic Storm.)
- Importance: The unemployment rate measures the financial health of the local, state, and national economy. As the recession has shown, high unemployment leads to losses in tax revenue, higher foreclosure rates, and overall loss of purchasing power for communities.
- Source: The Department of Labor calculates and reports the unemployment rate monthly through the Bureau of Labor & Statistics. Get monthly updates directly from the Economic Releases section of the BLS website.
- Calculation: The unemployment rate is based on a monthly survey of 110,000 households representing the entire United States. Results are weighted based on age, sex, race, geographic location, etc. The employment categories are:
- Employed – earning a salary or wages, unpaid workers (volunteers, interns)
- Unemployed – jobless, age 16 or older , available to work & looking for work
- Not in Workforce – under age 16, confined to an institution (hospital, prison, etc.), active in the military, retired, attending school, anyone else who hasn't looked for work in the last 4 weeks.
- Relevance:Use the data to make decisions about changing jobs, starting or expanding a business, moving to a new state, etc. Pay attention to the date of the report, because new figures are reported monthly. Compare current statistics with past figures to determine trends. Be aware of possible seasonal changes in unemployment. Understand the average unemployment figures for your community to determine if there is an abnormal movement. Combine this statistic with other information before reaching a conclusion. Just because the unemployment rate is high, does not mean you won't be able to find a new job. (For further reading, check out What You Need To Know About The Employment Report.)
Unemployment Insurance Claims
- Importance: Businesses pay unemployment insurance, as a percentage of employee wages, to the state. Employees who become unemployed by no fault of their own - they are laid off - must file a claim to receive income from the Department of Labor for up to 26 weeks in most states. The number of new claims indicates whether or not companies are laying off workers. When companies feel confident that demand for their products or services are high, they retain or hire workers.
- Source: The Department of Labor collects weekly unemployment insurance claim information from offices in each state.
- Calculation: States report the number of persons filing for unemployment insurance benefits. Initial claims are those requesting payments for the first time. The Department of Labor tracks industries, geographic locations, ethnicities, ages, etc. of workers applying for compensation.
- Relevance: The trend for new unemployment claims is often more relevant than just one month's worth of numbers. As the recession carries on, the number of unemployment insurance claims coming to an end is important. Unemployed people who were able to pay monthly bills with the help of unemployment benefits, may suddenly not be able to afford those bills anymore, impacting the overall economy. (Learn more in our tutorial on Economic Indicators.)
U.S. National Debt
- Importance: The government borrows money from the U.S. public and from foreign organizations. The total is considered the national debt. This number is often confused with the national budget deficit, which is the difference between the revenue the government brings in and the amount of budget items for a given year. When there is a budget deficit, the government must borrow additional funds to make up the difference. Borrowed funds are not free, interest is paid on the amount due and the principal must eventually be paid back. (For more, read What Fuels The National Debt?)
- Source: The U.S. Treasury Department tracks the total amount of funds borrowed. The total amount of current and past debt can be viewed at the treasury direct website: www.treasurydirect.gov. A monthly report from of budget line items is available at www.fms.treas.gov.
- Calculation: Congress sets the maximum amount of money the U.S. government can borrow. The current amount set in February, 2009 is $12.104 trillion. The Bureau of Public Debt accounts for and reports the amount borrowed and paid back. The Financial Management Service keeps track of budget line items and deficits.
- Relevance: Just like personal debt, national debt payments limit the purchasing power of the government, and citizens foot the bill. View local, state and national budget reports along with revenue sources to hold elected officials accountable to the amount of debt incurred.
Economic data is important to understand, and it's available to the general public. An excellent source is www.economicindicators.gov. Get the facts and interpret them for yourself.
To learn more about how the government deals with debt, read Is The U.S. Government Too Big To Fail?
InvestingFinancial literacy is the confluence of financial, credit and debt knowledge that is necessary to make the financial decisions that are integral to our everyday lives.
Stock AnalysisExamine the current state of Netflix Inc., and learn about three of the major fundamental risks that the company is currently facing.
Stock AnalysisExamine the Seagate acquisition of Dot Hill Systems, and learn what Seagate is looking to gain by acquiring Dot Hill's software technology.
Investing BasicsPlain vanilla is a term used in investing to describe the most basic types of financial instruments.
ProfessionalsFind out about some of the best documentaries that finance professionals can watch to gain a better understanding of their industry.
Options & FuturesProfessionals choose the options available to you in your plan, making your decisions easier.
Fundamental AnalysisOptions market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
EconomicsThe Fed continues to delay normalizing rates, citing inflation concerns and “global economic and financial developments” in explaining its rationale.
InvestingIn an industry still largely predominated by men, we look at 6 leading female value investors working today.
TermFinancial performance measures a firm’s ability to generate profits through the use of its assets.
A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>
The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>