The private-sector numbers are mildly encouraging -- if that trend continues, September's numbers should show positive overall payroll growth. But in the meantime, someone at the BLS is taking extra-special pains to encourage us not to get too agitated.

Here's the government's first paragraph. (Italics mine.)

Nonfarm payroll employment changed little (-54,000) in August, and the unemployment rate was about unchanged at 9.6 percent, the U.S. Bureau of Labor Statistics reported today. Government employment fell, as 114,000 temporary workers hired for the decennial census completed their work. Private-sector payroll employment continued to trend up modestly (+67,000).

Of course, another way to say "almost unchanged" in this context is "rose." But I guess that was unpalatable. The pattern is repeated throughout the report. Civilian labor participation rate: "essentially unchanged." Number of people marginally attached to the labor force: "little changed."

Nothing to see here, move along, move along!

But maybe the BLS is right to emphasize how little has changed -- there's not much to take encouragement from in this report, but it also doesn't indicate a sharp deterioration in the labor market. Yes, two indicators that we usually scour for signs of a burgeoning economy -- the number of hours worked per week, and temp hires -- barely budged up at all, but the BLS also made significant positive revisions to the June and July payroll numbers: June went from -221,000 to -175,000; July, from -131,000 to -54,000. So the summer hasn't been quite as bad as we thought it was, especially when one takes into account Census hiring.

And yet:

• The number of persons employed part-time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 331,000 over the month to 8.9 million.
• In August, 42.0 percent of unemployed persons had been jobless for 27 weeks or more.
• The seasonally adjusted U-6 measure of "Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force": 16.7 percent.

That last number has hardly moved at all this year, and that's a case where "almost unchanged" translates as just plain lousy.

Banks with more than $10 billion in assets -- only 1.3 percent of the industry -- accounted for $19.9 billion of the total earnings.

At the same time, the number of banks on the FDIC's confidential "problem" list increased by 54 in the quarter -- growing to 829 from 775 in the first quarter. That's a little more than 10 percent of the 7,830 federally insured U.S. banks.

Most of the biggest banks have recovered with help from federal bailout money, record-low borrowing rates from the Federal Reserve and the ability to earn big profits from fees on banking services and investment fees. They also have been able to cut back on lending in troubled parts of the country, such as Florida and Nevada.

Smaller and regional banks, however, have less flexibility. They depend heavily on making loans for commercial property and development. Those sectors have suffered huge losses. Companies have shut down in the recession, vacating shopping malls and office buildings financed by the loans.

All of the 118 banks that have failed this year have been smaller or regional banks. Last year 140 banks shuttered, most of them small institutions.

The decline in bank lending stemming from the financial crisis showed signs of leveling off, the data show. Total lending declined by $107.5 billion, or 1.4 percent from the first quarter. It posted the steepest drop since World War II -- 7.5 percent -- in 2009 from the year before.

FDIC Chairman Sheila Bair said banks' lending standards are beginning to ease for some types of credit.

"But lending will not pick up until businesses and consumers gain the confidence they need to hire and spend," Bair said.

She said the economic recovery is starting to be reflected in banks' higher earnings and the improved quality of loans, with fewer defaults and delinquencies.

The number of loans past due by three months or more fell 4.8 percent in the second quarter from the first. That was the first quarterly decline since early 2006, the FDIC said.

The only exception to the quarterly decline was commercial real estate loans; troubled loans in that category rose 1.2 percent from the first quarter.

For the first time since late 2006, banks overall set aside less to cover future losses on loans than they had a year earlier, the FDIC said. Total reserves declined by $11.8 billion, or 4.5 percent. Still, reserves remained at historically high levels, since the sluggish economy is expected to cause loan losses in the coming quarters.

The FDIC's deposit insurance fund, which fell into the red about a year ago, posted a slight improvement. Its deficit declined to $20.7 billion from $20.9 billion.

The FDIC expects U.S. bank failures to cost the insurance fund around $100 billion through 2013. The agency mandated last year that banks prepay about $45 billion in premiums, for 2010 through 2012, to help replenish the fund.

Last year, 140 federally insured institutions failed and were shut down by regulators. It was the highest annual number since 1992, when the savings and loan crisis hit its peak. Last year's failures extended a string of collapses that began in 2008, triggered by loan defaults in the financial crisis.

Depositors' money -- insured up to $250,000 per account -- isn't at risk. The FDIC is backed by the government.

----

AP Business Writer Daniel Wagner contributed to this report.

Mutual fund managers tend to clean house after Labor Day, taking profits on winning stocks and weeding out portfolios before putting out the rosiest possible end-of-quarter reports for their clients.

Workers coming back from summer breaks are also inclined to sell stocks as they get their financial affairs in order. Any festering issues with the economy or stocks during the summer, when trading volume is light, tend to get put off until fall.

The result: September is usually a dog of a month for the market. It typically starts with solid market increases, then tails off, says Jeffrey Hirsch, editor-in-chief of the Stock Trader's Almanac.

"There's just a general selling bias in the month of September," he says.

Four times in the past decade alone, the S&P 500 shed at least 5 percent in September. The average September decline since 1950 is 0.6 percent, according to the Stock Trader's Almanac. February is the next worst, with an average 0.2 percent loss, and December and November are the best, averaging 1.6 percent gains.

Of course, investors haven't forgotten that the financial world collapsed in September just two years ago. And the Sept. 11 attacks, which delivered a devastating blow to the stock market, remain a painful memory.

This year, there's a lot to frown about. The S&P 500 index is down 14 percent from its high in April, and 5 percent for the month of August alone as of Tuesday afternoon.

Stocks have fallen because the economic recovery is faltering. The economy has slowed to anemic growth, home sales the last three months are the worst on record, consumer spending is lackluster and unemployment is stuck near 10 percent.

The slew of weak economic data sapped the market of what little midsummer momentum it had and further shook the confidence of already wary investors.

"I don't think it would take a whole lot to get investors to start selling and consumers to start pulling back again," says Mark Zandi, chief economist at Moody's Economy.com. "The collective psyche is on edge."

Federal Reserve Chairman Ben Bernanke said last week that the central bank is ready to take additional steps to boost the economy, including buying more debt or mortgage securities in order to keep interest rates low.

But with the benchmark interest rate already near zero, any Fed action is unlikely to provide the oomph of past measures. Congress doesn't appear to have an appetite for another stimulus package.

Also hanging over the market is an air of heightened uncertainty because the November elections will determine which party controls Congress for the next two years. The S&P 500 has declined an average 1.7 percent in the September before midterm elections since 1930.

Not that September isn't bad enough already without all of this year's baggage. It's one of only three months, along with February and June, when stock prices typically decline.

The uncertainty is a serious consideration for financial advisers such as Dominick Vetrano of Fountainhead Financial in Chicago. He holds off putting more money into stocks beginning in August, even though he thinks the September market dips are usually psychological.

"There is little to gain by investing right before September and a lot to lose, so why risk it?" he says. "The September effect is well-documented."

Some experienced market participants, however, dismiss the significance of the trend and say it would be a mistake to try to time market decisions based on seasonal data from past years.

Investors ultimately should be guided by the financial health of the companies they're considering investing in. Hirsch, the market historian, agrees that history shouldn't guide investing alone. After all, the S&P 500 advanced 4 percent last September.

But he maintains that the numbers are too meaningful to dismiss entirely.

"You should have a general idea of what the market's rhythm and tendencies are," he says. "And you respond accordingly."

Consider this bizarre little outburst today on Ben Stein’s blog in the American Spectator, which follows a few unexceptional paragraphs on the current mysteries of economic policy:

[T]here are high levels of unemployment but the employers I talk to say there are severe labor shortages of skilled labor at every level from carpenters and plumbers to CEO's of biotech companies. And, as noted before, in my small circle of friends, anyone who has good work skills and a decent personality can get a job. I am not talking about the national scene. Just my little world. The chronic complainers and the malcontents and the unrealistic are the ones who cannot find work they want. The people who really want to work can get work. It might not be great work, but it's work.

Worse still is a post by Ira Stoll that acknowledges "unemployment numbers are grim," but he nevertheless highlights a subject he thinks is neglected by the mainstream media: the undeserving recipients of unemployment benefits. As he points out: 

[N]ot every one of the tens of millions of unemployed Americans has a case as bleak as the press, or, for that matter, President Obama's Republican critics (or Democrats who criticize Republicans for not extending unemployment benefits), might have you believe.

You see, according to Stoll there are at least seven categories of undeserving beneficiaries, including substitute school teachers in at least one suburban town in Connecticut, and some in Hawaii as well, who are receiving unemployment. Then there are part-time community college teachers. There are also young people in their 20s -- nobody knows how many -- who are gaming the system by working for a season and then collecting benefits while they smoke their bongs. And finally there are millions of people whose spouses are still working, "potentially" in high-income positions, and why should they receive benefits?

So anecdotally, there are lots of jobs around and lots of workers scamming the system for benefits. If you listen to enough right-wing economic punditry, you might be excused for imagining that the unemployed are merely more welfare queens. So much for "compassionate conservatism." 

The annual meeting at Jackson Hole always provides a valuable opportunity to reflect on the economic and financial developments of the preceding year, and recently we have had a great deal on which to reflect.

Hey, just this morning, the Bureau of Economic Analysis downgraded the second quarter GDP growth rate to a miserable 1.6 percent! So, even after juicing the economy every which way but loose the last two years, we're headed in completely the wrong direction. Congress won't do anything to help, so now everyone wants me to stop the bleeding.

However, although private final demand, output and employment have indeed been growing for more than a year, the pace of that growth recently appears somewhat less vigorous than we expected.

Remember how I was the wrongest person on the planet when I said the subprime mortgage bust was "contained" and wouldn't cause a worldwide financial crisis? Haha, man that was dumb. Well, guess what, I was wrong again earlier this year, when I decided the time was ripe for the Fed to stop bailing out the economy.

Incoming data on the labor market have remained disappointing.

The working class is unbelievably screwed. This is kind of bumming me out.

Overall, the incoming data suggest that the recovery of output and employment in the United States has slowed in recent months, to a pace somewhat weaker than most FOMC participants projected earlier this year.

Double-dip recession, here we come!

Despite the weaker data seen recently, the preconditions for a pickup in growth in 2011 appear to remain in place.

Come on -- do you know what would happen if I didn't say that things will get better, eventually? Wall Street would commit mass hari-kari.

At this juncture, the risk of either an undesirable rise in inflation or of significant further disinflation seems low.

OK, sure, unemployment is in the toilet, but don't expect us to do too much about it, because the only thing we really care about is inflation, and as far as we are concerned, everything's fine on that front.

The FOMC has also acted to improve market functioning and to push longer-term interest rates lower through its large-scale purchases of agency debt, agency mortgage-backed securities (MBS), and longer-term Treasury securities, of which the Federal Reserve currently holds more than $2 trillion. The channels through which the Fed's purchases affect longer-term interest rates and financial conditions more generally have been subject to debate.

OK, let me lay it out for you. The one thing the Fed is really prepared to do to help the economy is to keep purchasing debt, such as Treasury securities. By keeping our unbelievably monster huge portfolio of debt high, we theoretically lower the cost of borrowing throughout the economy. That should spur faster growth. We stopped doing this a while back, but so many people started refinancing their mortgages that our holdings of mortgage-backed securities began to disappear, which, ironically, meant that by not acting, we were actually contributing to a tightening of the money supply. That's a big no-no when economic growth is flat-lining. So when the economy started to go downhill again, we changed our strategy -- but not until after a big fight with members of the conservative faction of the Federal Reserve Bank's Board of Governors who believe that even such a cautious step was far too aggressive. These guys just don't care about unemployment. Some of them even think it's time to start raising interest rates! Hahahahaha.

By agreeing to keep constant the size of the Federal Reserve's securities portfolio, the Committee avoided an undesirable passive tightening of policy that might otherwise have occurred. The decision also underscored the Committee's intent to maintain accommodative financial conditions as needed to support the recovery. We will continue to monitor economic developments closely and to evaluate whether additional monetary easing would be beneficial. In particular, the Committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly.

I am not going to be responsible for yet another market crash. So I stomped all over the reactionaries, because even a blind man can see investor sentiment is as fragile as a 2-year-old on a sugar crash. I really don't want to be remembered as the Federal Reserve chairman who presided over TWO recessions. So let me tell you plainly: If the shit really hits the fan, we're going to open the taps wide open, buy every Treasury bond in sight, drop money from helicopters, and keep the U.S. economy on life support.

This is why, incidentally, the Dow Jones Industrial Average is back over 10,000 points. Yay me!

A rather different type of policy option, which has been proposed by a number of economists, would have the Committee increase its medium-term inflation goals above levels consistent with price stability. I see no support for this option on the FOMC.

Paul Krugman, who is one hell of a pain in the ass, believes that the Fed is far too concerned with keeping inflation low. He keeps whining about unemployment, and thinks that if we just did so much as announce that we are prepared to accept higher inflation, and then pursued monetary policy along those lines, the economy would get a steroid boost that would finally shake it out of its doldrums. Sorry, but that is completely nuts and it is NEVER GOING TO HAPPEN. Ever! Please shut up, Paul.

Inflation expectations appear reasonably well-anchored, and both inflation expectations and actual inflation remain within a range consistent with price stability.

I know, I know, the Federal Reserve is entrusted by Congress with two mandates -- promoting full employment and keeping inflation low. But everyone knows that we only really care about price stability, so never mind what I said before about the shit hitting the fan. As long as inflation is fine, we're only going to take baby steps.

Despite this recent slowing, however, it is reasonable to expect some pickup in growth in 2011 and in subsequent years.

Somewhere, over the rainbow, skies are blue.

On Friday, we're likely to see the estimate for second quarter GDP growth downgraded sharply, and if the trend continues, which seems likely, third quarter growth could flatline.

What's ahead? Look for home prices to drop sharply as the huge overhang in inventory for both existing homes and new homes forces would-be homesellers to recognize that it's a buyers market. And there's plenty more bad news to come. It seems appropriate here to outsource commentary to Calculated Risk, who has been extraordinarily prescient in his prediction of how U.S. economic growth would start slumping in the middle of 2010.

On Friday, the second estimate of Q2 GDP will be released. In the advance release, the BEA reported real GDP increased at a 2.4 percent annualized rate in Q2. However subsequent economic releases for construction spending, inventory and trade all suggest downward revisions in the second release. The consensus is for a downward revision to 1.3 percent real annualized growth.

And next week, the ISM manufacturing index will be released -- and this will probably continue to decline based on the regional manufacturing reports (I'm tracking all the regional reports right now because I expect a slowdown in manufacturing).

And next Friday, the August employment report will be released. I expect another weak report -- and I expect the unemployment rate to start ticking up.

Also I think the European situation is starting to heat up again with bond spreads widening to the May crisis levels for both Greece and Ireland.

In other words: Expect the worst, and you won't be caught by surprise. Or just read Calculated Risk, every day.