The Numbers behind the Unemployment Rate

Last week, the Texas Workforce Commission released employment figures for May showing the Capital Area region’s unemployment rate increased from 5.8% to 6.1%. Because the rate had decreased the previous two months and has now increased again, I thought it might be a good time to take a closer look at the numbers.

The graph below shows how the unemployment rate has changed for the Capital Area region over the past two years. The most obvious observations are the two big spikes from April to June 2008 and from October 2008 to January 2009. From January to May 2009, the rate seems relatively stable. After all, there has always been some fluctuation from month to month, which begs the question whether these recent subtle changes are just data noise?

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The unemployment rate is calculated through a Federal-State cooperative program between the U.S. Bureau of Labor Statistics and the Texas Workforce Commission using estimates produced of the number of employed and unemployed. These estimates are derived from a model using a number of data sources including current and historical data from the U.S. Census Bureau's Current Population Survey and the Current Employment Statistics program, and State maintained unemployment insurance data. More about the methodology can be found here.

Even if the unemployment rate remained at a steady 4%, the number of unemployed in the Capital Area would still increase slightly because of the region’s growing population. The graph below shows this trend by looking at change in the number of unemployed each month compared to the number from the same time a year ago. This graph also shows the steady increase in the number of unemployed people in the late summer 2008 and continuing into 2009. As of April 2009, the number of unemployed people was 72% higher than April 2008. Since the percent change is calculated from a year ago, we start to see the graph heading downward. This should continue over the next few months unless additional layoffs occur. As CAPCOG continues to monitor economic conditions in the next few months, we’ll keep this chart updated.

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Likewise, the number of employed people in the Capital Area should increase over time if the unemployment rate is constant. For the most part, this pattern has occurred except during the period from October 2008 to January 2009 when we saw the big spike in the unemployment rate. As economic recovery happens, there should be an increase in these estimates. In fact, the latest numbers released show the highest number of employed people over all previous months in the last two years.

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One final note, if the labor force continues to increase at its current pace, we would need to have an increase of about 9,700 unemployed people to raise the unemployment rate by 1% (to 7.1%) in one months time. This type of increase has happened just once over the past 24 months from December 2008 to January 2009.

Below is a current employment summary for each county within the CAPCOG region. For more employment data, visit the Texas Workforce Commission.

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Chris Ramser