Sometimes a drop in the unemployment rate gives bad vibes

That happens when the fall in the unemployment rate is due to more people getting discouraged and leaving the labor force. As this piece tells us:

The drop in the labor force lowered what is known as the participation rate, which is the percent of the population who are working or looking for work. That rate at 63.5% is at the lowest levels since women first started entering the labor force in large numbers. Part of the decline is no doubt due to retiring Baby Boomers, but part is also discouraged workers giving up looking for a job.

Just to get the “excuse” of “retiring Baby Boomers” out of the way, the chart shows that employment among those age 55 and over (a huge chunk of the Baby Boomers) never tanked and has chugged along at a steady pace. It doesn´t seem the group is contributing to a fall in the labor force!

The panels below give a dreary picture of the employment situation since the cycle peak in December 2007. To have a better feeling of how bad the situation is I pair each picture with its equivalent over the same period since the cycle peak in December 1981, which marked the beginning of another deep recession. (In the charts the vertical dotted bar indicates the end of the recession).

 

 

Now, would anyone venture to say that the differing behavior of nominal spending (a.k.a. NGDP or Aggregate Demand) had anything to do with the outcomes observed?

There will certainly be those who will say that monetary policy is powerless at the ZLB. For those I suggest this, or this.