In a world with a short attention span, the long grinding story of our economy rarely comes up for any significant discussion except when there is something new.  Lately the only genuine “news” related to financial conditions is how states are being dragged down and how their problems can be used as a bludgeon.  While today’s fights play out in state capitols and the streets around them, tomorrow’s stories might be a bit different.  Those stories won’t change until we see improvement in jobs.

While there are some good signs, we’re still in a holding pattern near what looks like a bottom.  Here is a detailed explanation of the problem – and what to look for.

No one has the state of our economy more solidly written into his job description than Ben Bernanke, Chairman of the Federal Reserve.  The best place to start is always what he has to say.  This is from his Feb 9 testimony to the US House:

“Following the loss of about 8-3/4 million jobs from 2008 through 2009, private-sector employment expanded by a little more than 1 million in 2010. However, this gain was barely sufficient to accommodate the inflow of recent graduates and other new entrants to the labor force and, therefore, not enough to significantly erode the wide margin of slack that remains in our labor market. … Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.”

That may sound a bit sour, given the recent drop in the headline unemployment rate.  As we all know, however, that number is dropping more because people out of work for too long no longer count.  The ongoing problem is better shown by the total employment participation rate, this graph from the St Louis Fed:
There are several important features in this graph.  The decline in the percent of the adult population working is steep after 2008, but there is another sickening plunge during the supposed “recovery” in 2001-2003.  If the job market is the key indicator of our economy, something awful has been happening for a solid decade – which is why the key inflection point of our Managed Depression has to be set about then, especially if we all agree that employment is what bears the closest watch.

The other important feature can be found longer ago, between 1970 and 1990.  We used to get by with a much lower labor participation rate than we do now, suggesting there are other social arrangements that are part of our trouble.  Some of this is, in fact, a matter of expectations when it comes to standard of living.

A closer look at the total number of jobs more recently shows us the immediate hole that has Bernanke’s attention right now:
There’s the gap of about 7.5M jobs that have to be created to get us back where we were before 2008.  From Bernanke’s statements we can be sure that watching that number is his top concern.

That brings us naturally back to the headlines as state governments convene across the nation.  State governments are very likely to shed workers in order to balance their budgets – and these newly unemployed will only add to the problem.  The key thing to watch as all the demonstrations play out is how many state and local employees wind up on the unemployment roles – and that’s what Bernanke is likely to be looking at.

That may sound like terrible news, and after a year of not much it may be.  It’s all a matter of how the private sector grows jobs to absorb whatever job loss is coming.  So far, there’s not a ton of hope that this will go well, but it may be improving.