Unemployment and CFA Exam: 3.6 Million Job Loss

Today, it is announced that the US job loss reached 3-decade high in Jan 2009, bringing the total job loss to 3.6 million since the recession in Dec 2007!

About 598,000 people lost their jobs in Jan 2009, well above the expectation! The job losses spread across the country and sectors. This is a good chance to understand some of the important CFA exam concepts by reviewing the data disclosed today:

Unemployment rate = 7.6% (jumped 0.4%)

Unemployment and underemployment rate = 13.9%

Employment to population ratio is lowest since 1986

Job Lost in Jan:

Manufacturing: 207,000

Construction: 111,000

Service-sector: 279,000

Temporary: 76,000

Let’s review the following concepts to understand the data more:

Temporary Job is an indicator of future economic growth. As temporary job is still shedding (76k), the prospect is still grim!

Unemployment Rate = number of unemployed / labor force

Labor Force Participation Rate = Labor Force/ Working Age Population

Employment to population ratio = number of employed/ working-age population

Unemployed person: 1) actively searching for job or 2 )laid off and waiting to be recalled or 3) will start job in the next 30 days

Labor force = employed or unemployed actively seeking jobs

Working-age population = 16 years old or older not living in institution

It is important to realize that discouraged people (unemployed but not actively seeking for jobs) are not included in the labor force. Therefore, unemployment rate will better reflect the ability of the economic environment to provide jobs.