Tags

, , , , , , , , , ,

If you have any doubt that the American economy’s subsidized private sector is driving employment gains lately – at the expense of the real private sector – three new sets of government data should settle the question for you. As a result, they should also make clear that the nation’s employment gains during the current recovery have been much less impressive than economic bulls believe – including a Federal Reserve majority that reportedly is convinced that they justify the first interest rate hike since the financial crisis broke out.

For as I’ve noted repeatedly, that subsidized private sector is made up of parts of the economy like healthcare services, whose size, growth, and employment performance is heavily influenced by government subsidies and other politicians’ decisions. Not that these sectors don’t provide vital services. But because market forces aren’t in their saddles, they’re unlikely to generate the kind of productivity growth and innovation that the “real” private sector produces, and that a truly healthy economy needs.

Let’s start today with last Friday’s monthly jobs report (for November) from the U.S. government. The consensus holds that it was more than good enough to reinforce the Fed’s determination to start modestly tightening monetary policy at its upcoming meeting next week. In addition to total November net job creation remaining above the 200,000 mark, the upward revisions for October and September strongly indicated that an employment weakening that seemed to have emerged in mid-summer was over.

But take away subsidized private sector job creation and the picture doesn’t look nearly so rosy. As it’s conventionally defined by the government, the private sector created 197,000 net new jobs last month. (This figure will be revised twice more in the next two reports.) But 40,000 of those positions (20.30 percent) came in the subsidized private sector. And that percentage was relatively low compared with recent months. In October, it was 23.36 percent. (Next month, this figure will be revised for the final time in 2015.) In September (a final – for now – figure), it was 35.15 percent.

In fact, if we look at the longer term trends, to smooth out those short-term fluctuations, it’s clear that the subsidized private sector has been out-performing the real private sector as a net job creator – and at an ever faster pace.

For the first eleven months of 2013, total non-farm jobs (the government’s U.S. employment universe) grew by 2.279 million and the conventionally defined private sector boosted employment by 2.327 million. (Government jobs decreased.) Of the new non-farm jobs, 14.91 percent came in the subsidized private sector, and these industries comprised 14.62 percent of all new conventionally defined private sector jobs.

For the first eleven months of 2014, overall job-creation was much stronger – 2.787 million. And the conventionally defined private sector added 2.723 million net new positions. But the subsidized private sector’s share of the former increased to 15.57 percent, and of the latter to 15.94 percent.

Now look at what’s happened during the first eleven months of this year. Total non-farm jobs are up by 2.308 million – much less than in 2014. And employment in the conventionally defined private sector improved by only 2.225 million. But the subsidized private sector’s share of the former jumped to 25.82 percent, and of the former to 26.79 percent. In fact, although January-November net job creation in the non-farm economy in 2015 was only 1.27 percent higher than in 2013, and conventional private sector employment growth was 4.38 percent lower, the job creation rate in the subsidized private sector had surged by 75.29 percent.

And here’s a little more perspective: In December, 2007, when the last recession began, the subsidized private sector comprised 13.63 percent of all non-farm jobs (on a stand-still basis), and 16.26 percent of all conventionally defined private sector jobs. By June, 2009, when the current recovery began, these percentages had risen to 14.82 and 18.03. Last month, they stood at 15.61 percent and 18.44 percent.

As previously noted, the above figures define the subsidized private sector as health care services, for-profit educational services, and social assistance services. Others could be added – like medical- and defense-related manufacturing) but they’re not conveniently broken out each month by the Labor Department. So if anything, what we know for sure about the burgeoning employment role of the government-subsidized private sector underestimates its importance. Would the Fed be so certain to raise interest rates with this data in hand?

Next up on RealityChek – what today’s closely watched statistics on job openings are saying about America’s jobs recovery.

Advertisements