The verdict on last Friday’s October U.S. jobs report is in from the economics community, and it’s unmistakably a rave review. One reason is that month’s 271,000 total net new non-farm jobs (the Labor Department’s U.S. employment universe) amounted to a strong reversal from two previous months of gains well below 200,000 (including revisions). In fact, it was the best total of 2015 so far. (Like the September number, the October jobs figures are still preliminary.) Another reason is that on a year-to-year basis, wages before adjusting for inflation registered their strongest increase since the current economic recovery was just beginning, in the middle of 2009.
Unfortunately, yet another reason for the enthusiasm is the widespread failure to distinguish between jobs in the “real” private sector (which generally reflect the vigor of the kinds of free market forces that most Americans rightly prefer to see as the nation’s main growth drivers) and jobs in what I’ve long been calling the government-subsidized private sector (which heavily depend on government spending levels determined by politicians). Even though October job creation in the conventionally defined private sector was nearly double that of August and September, it still wasn’t enough to prevent employment in the subsidized private sector (in particular, health care services) from continuing its relentless growth as a share of total hiring.
The most striking evidence for the still-burgeoning dominance of the subsidized private sector comes from comparing job creation in the first ten months of this year versus the same periods in 2013 and 2014. During the former, the subsidized private sector generated 14.63 percent of the 1.962 million net new non-farm jobs created and 14.17 percent of the conventionally defined private sector jobs. (Public sector hiring was in the tank.)
The 2014 figures reveal that the subsidized private sector’s job creation increased to 16.62 percent of non-farm hiring (2.364 million) and 17.02 percent of conventional private sector hiring (2.309 million).
The numbers for 2015? The subsidized private sector has accounted for 25.70 percent of all U.S. job creation so far this year, and 26.82 percent of conventional private sector hiring. In other words, the subsidized private sector has nearly doubled its share of total non-farm and conventionally defined private sector job creation in only two years.
And here’s more evidence that the subsidized private sector is punching way above its weight: Although its share of total job growth and total conventional private sector job growth keeps surging, its share of employment on a static basis is still considerably smaller: 15.59 percent and 18.43 percent, respectively, as of October.
At the same time, measured this way, the subsidized private sector is significantly bigger than it was at the end of the last recession and even at the beginning of the current recovery – when it completely dominated employment growth. Back in December, 2007, when the last downturn technically began, the subsidized private sector represented only 13.63 percent of total non-farm jobs and 16.26 percent of conventionally defined private sector jobs.
In June, 2009, when the recovery technically began, that subsidized private number had risen to 14.92 percent of total jobs, and all the way up to 18.03 percent of jobs in the conventionally defined private sector. That last number reflects the fact that, whereas the Great Recession was an employment massacre for the conventionally defined private sector, jobs in the subsidized private sector actually increased.
The new October figures make clear that, although the conventional private sector has recovered many of its hiring chops, it’s still getting overtaken by industries whose demand and therefore employment levels rely substantially on public sector decisions.
If the economics community wants to view this as a sign of improving national economic health, fine. Ditto for politicians and the Federal Reserve, which is could be on the verge of making a key decision to raise interest rates based in part on supposedly encouraging recent data like the October jobs report. But their judgment would deserve much more confidence if it incorporated any recognition that, borrowing from a popular automobile ad, this isn’t your father’s private sector.