Watch That Denominator

A fall in the joblessness rate
Would normally seem to be great,
Excepting, of course,
When there's less labor force,
Deflating the weight of that rate.

When the August unemployment rate was announced on Friday, its decline from 8.3% from 8.1% may have seemed like good news. In reality, the employment data were disappointing, because the number of nonworking people has actually increased. The growth in non-farm payroll employment of 96,000 fell short of the 125,000 consensus forecast; neither did it meet the rate needed to accommodate new entrants into the job market.

However, not all nonworking people count as "unemployed" because the federal statistics only tally those who are working or actively seeking work. This is the definition of the labor force, which is divided into the number of unemployed job-seekers to give the unemployment rate. When the jobless become discouraged and stop looking for work, they are no longer considered "unemployed" or part of the labor force. Thus, they decrease both the numerator and the denominator of the unemployment rate by the same number, which lowers the rate. It is therefore also important to monitor the labor force participation rate, i.e., the labor force divided by the working-age population.

As shown in the graph, the labor force participation rate remained fairly constant at around 66% during the Bush years, until the onset of the financial crisis in the fall of 2008.  At that point, labor participation began a decline that has continued in the Obama years.  It now stands at 63.5%. A true recovery will have to bring those lost participants back into the labor force.

Belt-Tightening Blues

In the stock market sell-off's severity,
There's a White House political rarity:
While private demand
Is too soft to expand,
There's a Democrat talking austerity.

As millions of Americans fretted about S&P's Friday night downgrade of US sovereign debt, Monday's stock markets saw a tsunami of selling that began in Asia and rolled across the world, ending with the S&P 500 stock index down 6.7% for the day. However, the downgrade itself was not the catalyst, as evidenced by the fact that Treasury prices actually rose. The market was much more spooked by waning growth prospects, caused in part by government belt-tightening at a time of slack private demand. How ironic that, following a Republican President who stimulated the economy with spending and tax cuts, and his Democratic successor announces years of growth-dampening spending cuts ahead.

Whence Came the Deficit?

Uncle Sam, once quite in the black,
Financially fell off the track
Through tax cuts galore,
Recession, and war
In Afghanistan and in Iraq.

The New York Times editorial page gave a lesson in US federal deficit history over the weekend. Countering the notion put forth by Grover Norquist and his Republican pledgees in Congress that the deficit results from "runaway spending" under Obama, the Times demonstrated that a combination of military spending, as well as reduced revenues from lower tax rates and a weak economy, had squandered the surplus left behind by the Clinton administration. The stimulus measures implemented by Obama, though adding to the deficit in the short term, are only temporary.

Forint Affairs

Those liquidity problems  of Hungary's
Shook the Eurocrats down to their dungarees;
Said the IMF head:
"Zees 'ungarian dread
Ees more fright'ning than George Bush ze younger ees."

Who Do You Blame?

On Washington's Sunday talk circuit
Big names are expected to work it
At the risk of suspicion
Many take a position
Assuming they later can shirk it.

- or -

By now it's abundantly clear
Under Washington's culture of fear
Some political hacks
Hid their sneaky attacks
While they ran up more debt every year.