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The shrinking sector

Analyzing the latest economic data these days has become a political Rorschach test: What you see depends on your location in the ideological spectrum.
Take the response to the May employment numbers, released last week, which showed a net gain of 69,000 jobs but an increase of 0.1 percentage point in the unemployment rate to 8.2 percent.
Republicans jumped all over those numbers, with presumptive GOP presidential nominee Mitt Romney saying the news was a "harsh indictment" of President Barack Obama’s economic policies. By contrast, the White House, while acknowledging "we are still fighting back from the worst economic crisis since the Great Depression," highlighted the fact that the economy has added private-sector jobs for 27 straight months-a total of 4.3 million new payroll hires.
One fact barely mentioned in the White House release-and absent entirely from Mr. Romney’s statement-is that public-sector employment shrank again in May. Private businesses actually added 82,000 jobs, while government lost 13,000.
Since the end of 2008, government job losses at the federal, state and local levels have totaled nearly 600,000. Writing recently in the Wall Street Journal’s Real Time Economics blog, Justin Lahart calculated that if government payrolls had remained as they were in December 2008, the unemployment rate in April would have been 7.1 percent, not 8.1 percent.
This actually understates the impact of public-sector spending cuts, because private firms that are government contractors have taken hits as well. For example, construction employment nationwide fell in May by the largest amount in two years because, the Associated General Contractors of America reports, "a 1.4 percent decrease in public construction spending restrained overall construction activity growth to 0.3 percent."
In truth, private-sector job growth since employment bottomed out more than two years ago is in line with recent post-recession periods; but in previous recoveries, government employment rose instead of falling.

This is not an argument for more government hiring and spending. But let’s concede that public-sector downsizing has played a clear role in the slow job-market recovery-and will continue to do so.

6/8/12 (c) 2012 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.


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