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Unemployment vs. Participation Rate

By: Grant Moon 09/05/14 10:49 am

To stimulate the economy in its most honest way is to get people to buy stuff. Some say that consumer spending contributes up to 70% of the entire GDP. When people buy more stuff from businesses both large and small, more people are back to work, more taxes are being paid and the economy expands on its own. This is compared to say the Fed lowering key interest rates. That can stimulate the economy by encouraging businesses to borrow money at near-zero rates. Yet we’ve been on that near-zero rate thing for quite some time now. Not to say the Fed doesn’t do any good, it does what it can but we need people to buy stuff.

Now consider today’s unemployment report for August. The rate dropped a little to 6.1% but that’s not as important as another tiny piece of data economists track called the Labor Participation Rate. The unemployment rate doesn’t track every single adult. It tracks those that are unemployed and looking for work. It doesn’t count those who have given up looking. That’s the labor participation rate and twice this year, including August, the rate matched the low hit back in 1978. That was President Jimmy Carter’s second year in office. To get more people to buy stuff they have to have money to do so. If they’re out of work and don’t have any reasonable income, there’s no consumption.

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