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Private sector jobs are growing at a moderate pace, but the public sector is shrinking

The September employment report issued today was pretty much in line with expectations, which is actually somewhat unusual. It did, however, shed some new light on the economy's recovery. For one, it confirmed that employment in the private sector is growing, at an annualized rate of about 1.2–1.5% over the past six months. This is neither spectacular nor horrible; in fact, it is only a bit less than the average pace of job growth in the previous recovery. And it is still the case, as I have noted previously, that the household survey is leading the establishment survey, which is typical in most recoveries because the household survey is better able to pick up jobs created by small startups. The household survey shows that the private sector has created about 1.7 million jobs year-to-date, while the establishment survey pegs the number at 900K.

The most startling thing in this report was news that the public sector is shedding jobs like never before (third chart). With most of the census workers gone, we now see that public sector jobs are shrinking at a significant rate (1.7% annualized since the end of last year). This spells bad news for those who are losing their jobs, but it's good news for the economy, since it means the reversal of the trend towards ever-greater government bloat that has been a drag on growth for years. It also means that state and local governments are biting the bullet and cutting costs, and that is something that simply must be done. So, to the extent that a shrinking public sector is resulting on a drag on growth (which is not really significant, since there has only been a net decline in public sector emploment of some 250K year to date), this is not really bad news, it's a necessary adjustment, and it is freeing up resources which will ultimately be put to better use by the private sector.

Adding it all up, the private sector is doing a decent job of creating new jobs, and the public sector is undertaking the difficult task of trimming bloated budgets. Given the headwinds coming from fiscal and monetary policy, this is not at all a bad combination of events.

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