Macroeconomic Indicators: GDP and Employment Analysis

Economic Indicators: GDP & Employment

Gross Domestic Product (GDP)

  • GDP Quarter Two Third Revision: The major economic news for the week is the third and final revision for GEP Quarter Two. Quarter Two ended in June, with the first report in July, the second in August, and this being the final report.
  • Expected Growth: The GDP is expected to be up by about 3.3\%
  • Expectations and Market Impact: Investors prioritize macroeconomic reports like GDP. Investment decisions start with the economy and then narrow down to specific companies.
    • Meeting Expectations: If the GDP report meets expectations (e.g., 3.3\% growth), markets have usually already priced this in, leading to no significant buying or selling decisions.
    • Below Expectations: An inferior report (e.g., 2\% instead of 3.3\%) would cause stock sales, as it implies a weaker economy or potential recession. Lower GDP generally means businesses are declining, leading to stock market drops.
    • Exceeding Expectations: A more impressive report (e.g., 4\% or 3.5\%) would encourage stock purchases, causing the stock market to rise.
    • Conclusion: Market reactions depend on whether expectations are exceeded, not met, or met, similar to how unexpected events (like a fire) change behavior.

Employment Situation

  • Employment Reports: Two main surveys provide employment data:
    • Household Survey: Gathers data on the unemployment rate, labor force participation rate, and other percentages based on individual responses.
    • Establishment Survey (Payroll Report): Reports the net number of jobs added in a month.

Full Employment

  • Definition: The economic goal of achieving full utilization of available labor resources, but not zero unemployment.
  • Federal Reserve's Mandate: The Federal Reserve has two primary goals: price stability and full employment.
  • Healthy Unemployment: Frictional and structural unemployment are considered healthy, representing:
    • Frictional: People transitioning between jobs or finding a first job.
    • Structural: People getting retrained for emerging jobs.
  • Natural Rate of Unemployment: Full employment corresponds to an unemployment rate of approximately 5\% (Fed now suggests 4-6\%). This rate implies only frictional and structural unemployment, with no cyclical unemployment.
  • Cyclical Unemployment: Unhealthy unemployment that occurs when there are no jobs available due to economic downturns, distinct from finding/training for existing jobs.
  • Labor Market Equilibrium: Full employment signifies equilibrium in the labor market, where the supply of labor equals the demand for labor (number of workers equals available jobs). Equilibrium is considered an efficient market point.
  • Potential Output: When the economy is at full employment, it is fully employing its labor resources, leading to a level of production known as potential output.
    • Measurement: Potential output is difficult to measure directly as it's a moving target (GDP generally rises). Instead, it's inferred by achieving full employment (5\%$ unemployment), meaning the economy is doing its best with available labor resources.

Demographic Data (August 2022)

  • Source: Household survey, which provides demographic breakdowns (unlike the establishment survey).
  • Overall Unemployment: 3.7\%. This rate is very low, even lower than today's (approx. 4.3\%), indicating an economic boom or expansion (below 5\%
  • Gender: Minimal difference overall (men: 3.5\%, women: 3.3\%$ $).
    • Recession Impact: Men's unemployment typically rises faster during recessions due to their higher representation in cyclical industries like construction and manufacturing. Women are more likely to be in defensive jobs or roles within the expanding government sector during recessions.
    • Education: Higher college graduation rates among women make them less sensitive to recessions.
  • Teenagers (16-19 years): Highest unemployment rate at 10.4\%.
    • Reasons: Lack of experience and education.
    • Minimum Wage Impact: Minimum wage laws disproportionately affect teenagers, making it harder for employers to justify hiring inexperienced workers at a mandated higher wage. Teenagers, acting as