Never let it be said government data - and the market's response to it - isn't interesting. We got a surprising drop in the unemployment rate with this morning's report from the Department of Labor despite the fact that job growth was fairly anemic last month. Like we told you in yesterday's newsletter, we weren't looking for anything outside of the recent range between 150K and 200K for the new-jobs number from the DOL. We ended up with 169,000 new jobs last month (or 152,000 new private-payroll jobs). That was, however, enough to whittle the unemployment rate down to 7.3%, suggesting progress that I frankly don't think the market was expecting so see. I'm deeming it a surprise because traders weren't quite sure what to do with it, judging from this morning's market action. Stocks opened much higher, celebrating a month of decent jobs growth and the falling unemployment rate, then stocks sold off hard when investors had time to digest the possibility that encouraging employment news would likely mean an end to the Federal Reserve's QE program, and then the indices recovered around mid-day when traders finally realized July's new payrolls figure had been revised from 162,000 new jobs to only 104,000... putting the pressure back on Bernanke and the Fed to keep its QE efforts going for at least a little while longer. Of course, the burning question most investors had about the employment situation still hasn't been answered by the media: Was August's jobs data good, or bad? Fortunately, your OCD, data-junkie friends here at the SmallCap Network have the time, ability, and willingness to dig into the numbers nobody else did today. First and foremost, August's job data was bad. Technically it could have been worse, but even a small step backwards in this environment is a problem. Despite the slide in the unemployment rate, the number of people who are actually working fell from July's 144.285 million to 144.170 million. That's a difference of 115,000 people. The number of unemployed people also fell, from 11.514 million to 11.316 million, which is an improvement of 198,000 people. So how can we have two completely-conflicting data sets? Well, two things need to be noted about the numbers the Department of Labor publishes every month. One of those is, while they're pretty good guesses, they're still just estimates. The second thing - the size of the labor force (the people who are eligible and looking for a job) as well as the population is always changing. The unemployment rate wouldn't have budged last month had it not been for the shrinking civilian labor force level. In July, 155.797 million people were technically in the labor force. As of August, however, only 155.486 million people were part of the nation's labor pool... 311,000 fewer people. When comparing the number of unemployed people to a labor force that's shrunk by more than 300,000 workers, it's not too tough to show improvement in the unemployment rate. Again though, there are fewer people working now than there were a month ago. With all of that being said, is there any way to normalize the ever-changing mathematics behind what's become an almost-pointless unemployment rate number? Yes, there is. The two participation ratios we talk about every month do exactly that, and it's the slump in those two numbers that prompted us to say August's jobs situation was far more bad than good. The labor force participation rate (the number of people considered to be part of the workforce compared to the entire population) fell from 63.4% to 63.2% in August, and the employment-population ratio (the number of people who are actually working compared to the entire population) fell from 58.7% in July to 58.6% in August. They may be tiny tumbles in terms of the size of the dip, but when you're talking about an entire nation's jobs - the lifeblood of our consumer-driven economy - even a small contraction makes a significant impact. I'm not trying to paint a grim picture to scare you. Things like this never really take the "gloom and doom" toll some of the media's experts love to describe, and I sincerely believe we'll survive whatever's thrown our way, economically speaking. I just want to arm you with facts that will eventually be reflected in stock prices. Right now, the jobs situation seems to be deteriorating, which could make it tough for companies to reach their lofty earnings goals in Q3 and Q4. Yeah, the Fed's likely to keep the QE program alive for a little longer, but that's a lifeline that's becoming less and less effective. Now, onto some more near-term stuff for the market. Fizzle There wasn't a whole lot of net movement from the market today. In fact, the S&P 500 closed almost perfectly even with yesterday's close. That doesn't mean there wasn't plenty to dissect after today's session, however. We talked a little about it yesterday, but it really came into play today... the S&P 500 hit a wall at the 50-day moving average line (purple) and peeled back a good bit. It wasn't as if there was a lack of volume leading to a listless market either - the participation was actually pretty solid today, especially for a Friday. It's just that the participation was as heavy on the selling side of the table as it was from the buying side of the table. Take a look. You can also see the VIX slid into its 20-day moving average line without actually moving under it. Maybe the bears drew a line in the sand there too, and plan on using it as a springboard for the VIX (which is also bearish for stocks). So we're bearish? It's a little too soon to say that with a lot of confidence; the bulls may give themselves another shot at a break above the 50-day moving average line come Monday. We just won't know until then. One thing is for sure though ... we're at an inflection point, and something's got to give soon. There's nothing you can do about it right now, however. Let's just go enjoy the weekend. We'll get back to business on Monday. In the meantime, has everybody taken a closer look at the free trial offer the SmallCap Network Elite Opportunity has extended? 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