I just ran across this wonderful chart in the latest John Mauldin newsletter (www.johnmauldin.com).  It brought to mind a conversation I had with a a friend at a birthday party in SF earlier today.   US GDP is finally picking up and looks likely to be able to maintain a 3% increase year on year for some time.  Not particularly exciting from a investor’s standpoint but solid enough to provide jobs to a growing population…but not enough to put a dent in our unemployment rate as we have millions of lost jobs that need to be recreated.  As it stands, the only factor that can possibly bring down our unemployment rate absent a substantial increase in GDP is people leaving the labor force.

If you haven’t looked for work in the last four weeks you are absent from the labor force; you are not counted as unemployed.  The major factor contributing to the decrease in the unemployment rate has been a drop in the number of those who are actively seeking work.  We are sliding back to a level of participation in the workforce not seen since 1980.

Given that Americans since the 1970s have had to increase the number of family members working, e.g. both spouses working full time, this may not be as bad as most pundits have made it out to seem.  Average wages per household have grown far behind inflation for some time; perhaps a a sustained bout of deflation and especially a reduction in housing costs as we are seeing played out across the Bay Area might make not economic sense, but contribute mightily to quality of life.  Were we actually much better off over the last three decades with 65% of the population in the workforce, or is a level below 60% completely in keeping with a wonderful life?  I’ll need to look to those more elder than I for the anecdotal response.