Uh-Oh………

Labor force participation rate

It looks like the Fed was a little bit premature in its decision to ease off quantitative easing:

Today’s U.S. unemployment figures were surprisingly bad. Only 74,000 jobs were added to payrolls in December, barely half what analysts had expected. The news was a reminder of how far from normal the economy still is -- and of how tricky it will be for Janet Yellen, who’s about to take over as chairman of the Federal Reserve, to explain the central bank’s policy.

That jobs number by itself is more worrisome than alarming. It’s a noisy statistic, subject to seasonal disturbances and big revisions. But it can’t be dismissed, either. It’s enough to suggest that the economic acceleration that looked to be getting under way in recent months isn’t yet a done deal. Some of the markets’ recent enthusiasm on that score needs to be reined in - - and, thanks to these numbers, it will be.

At first sight, the big fall in the unemployment rate to 6.7 percent from 7 percent tells a much happier story. Sadly, no. The fall reflects a further drop in the number of people looking for work. A shrinking labor force reduces the economy’s productive capacity, to say nothing of the effect on the dropouts’ prospects. And the proportion of long-term unemployed -- the workers most at risk of dropping out of the jobs market in future months -- remains close to 40 percent of the total.

In one way, the implications for policy are clear: This is no time to be tightening either fiscal or monetary policy. Extending unemployment benefits, which already made sense on economic and humanitarian grounds, is now all but mandatory. If this can be financed by extra borrowing rather than by offsetting cuts in other spending, so much the better: Some new fiscal stimulus, however modest, wouldn’t go amiss.

The bad jobs news will make the Fed think twice about its plan to phase out asset purchases -- the policy of quantitative easing, which it has been using to supply unconventional monetary stimulus. Until better numbers come along, this policy may be paused or even reversed, a possibility Chairman Ben S. Bernanke mentioned in his last news conference. Financial markets will also expect a delay in any decision to start raising interest rates. On news like this, the Fed will want to avoid any suspicion of wishing to tighten monetary conditions.

It is true that these numbers can be volatile, but it has to give the Federal Reserve a case of gas.