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A decent jobs report

As the top chart shows, both the household and establishment surveys of jobs are telling the same story: the number of jobs continues to expand at a fairly steady pace. The unemployment rate is still very high (it would be higher still if millions of discouraged workers had not given up looking for a job), and economic growth is sluggish, but nevertheless, a little more than 3 million private sector jobs have been created in the past two years. Moreover, as with a lot of recent data releases, there is no sign in today's report of any emerging weakness.

The pace of job creation is not a strong as it should be to keep pace with the growth of the working age population and reabsorb those laid off in the past, but the economy is creating private sector jobs at about a 1.7% annualized pace, which translates into roughly 160K new jobs per month. December was a bit stronger than that, with 212K new jobs reported—more than the 178K expected, but not as much as the 325K new jobs found in the ADP survey reported yesterday. At this rate of job creation, the economy is perfectly capable of growing at a 3-4% pace (~1.7% growth in jobs plus ~2% growth in productivity).

It is encouraging to see that the public sector workforce continues to shrink, since it had grown much more than the private sector over the past decade. It's also comforting to see that growth in government spending has slowed to a crawl (up only 2.7% in the past year), as that has resulted in some important shrinkage in the size of government relative to the economy. As the public sector continues shrinking its body count and its spending relative to GDP, this returns resources to the more productive private sector and should allow stronger overall growth in the future.

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