Private sector job growth impacted by public sector job losses: Economic recovery suffers

Job growth numbers for the months of April, May and June of 2012 have been lackluster. Fewer than 100,000 new jobs have been added each month. June numbers, however, did show indications of a rise in payroll and hours worked. The effect of slow job growth puts additional pressure on the Federal Reserve to reduce interest rates. It could also bring the economy closer to another recession. What is the current state of job growth and what does it tell us about the economic recovery?

The state of our economy

Want to know how the economy is doing? A recent article for FastFood.com says to look at the restaurant industry. Unlike previous decades when the auto industry was the prime indicator of economic fitness, now it’s foodservice that points the way. The July 28, 2012 article titled, “Restaurant Industry Indicates Economy Is Bouncing Back,” asserts that a surge in foodservice, which at 13 million people is the second largest private employer, indicates an economic comeback.

According to Henry Kasper, supervisory economist for the Bureau of Labor Statistics, job growth is currently between nine and 10 percent for the industry. “Right now, we are experiencing a period of quick growth. The restaurant industry is growing at twice the rate of the nation’s overall job total. The limited-service sector of the industry has grown by about four percent. This has some economists perking up,” Kasper said.

Public vs. private sector

Ron Scherer analyzed job growth by sector for his July 6, 2012 article for The Christian Science Monitor titled, “US adds 80,000 jobs in June, as growth remains sluggish.” Scherer reported that the manufacturing sector increased jobs by 11,000 in June due largely to new jobs in the automobile sector.

Other areas that saw job growth in June were business services at 47,000 new jobs and temp services at 25,000 new jobs. Understandably, employers are cautious about hiring full-time workers and are filling available slots with temps who can be let go at any time. However, a jump in temp hires is also an indication that full-time hires may occur in the near future.

According to Scherer, the public sector continues to feel pressure to cut jobs and continues to shrink with the US Postal service’s  6,200 lay offs from June. Scherer quoted Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla. who said, “The federal government is now losing jobs. […] State and local governments are recovering but not very rapidly. […] It indicates there are still pressures on state and local governments.”

“In fact, Brown says that, looking at education jobs on an nonseasonally adjusted basis, it appears that about 50,000 more teachers and school bus drivers lost their jobs in June than a year ago,” Scherer stated.

Ripple effect

Since the official start of the recovery in June of 2009, the public sector has lost 627,000 jobs. In the period beginning January 2011, the private sector has added 3 million jobs while the public sector has cut 315,000 jobs. The net result is an overall lack of job growth. The two sectors are clearly connected and when public sector jobs are lost, so too is the spending power of those workers. Dollars that would have flowed into the economy and fueled growth are not available and so private sector job growth falters.

A July 28, 2012 article by Mara Lee for Courant.com titled, “As Companies Add Jobs, Public Sector Stuck In Recession,” focused on how public sector job losses are affecting the local economy in Connecticut.

“For instance, in New Britain, there were 1,108 school employees last school year; starting this fall, there will be 52 fewer. In the previous school year, there were also about 50 jobs eliminated. Each time a teaching job isn’t filled, there’s a recent education degree holder who’s likely to be living still with his or her parents, working as a tutor or a substitute, or at the mall, instead of being able to rent an apartment and buy furniture,” Lee wrote.

Thousands of state workers took early retirement and so have the funds to contribute to the local economy. If these retirees decide, however, to move to a warmer climate, say Florida, then their loss will be keenly felt if their jobs are not filled.

Analysis of labor statistics by The Economic Policy Institute (EPI) shows that if it were not for cutbacks of jobs at the state and local level, then the labor market would have 2.3 million more jobs today; half of which would be in the private sector. Continued pressure for austerity by state and local governments will likely continue to drag down efforts at job growth and recovery.

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