From Barron's, July 19:
Public sector job growth accounted for nearly a quarter of net new jobs in the past year. Don’t expect other sectors to pick up the slack as it cools.
Public sector hiring helped fuel the growth of U.S. payrolls in the past few years, but now looks set to slow. Other sectors of the economy are unlikely to compensate for diminished government job growth, suggesting the once-red-hot labor market will continue to cool.
A pullback by government would be one more negative development as the Federal Reserve shifts its focus from inflation to the full-employment side of its dual mandate. Unemployment has ticked up to 4.1% from 4% in May and is up from a historical low of 3.4% in April 2023. Weekly claims for unemployment insurance have been rising, along with long-term unemployment, and temporary staffing has declined. All have been leading indicators of hiring trends in the past.
While employment remains healthy for now, Fed Chair Jerome Powell has said the labor market is no longer overheated.
The government sector added more than 607,000 workers to the nation’s nonfarm payrolls in the past year, or nearly a quarter of all net new jobs. In June, it accounted for 34% of total payroll gains, with healthcare a sizable second, at 24%.
While the healthcare sector still has vacancies to fill, government recruiting is running out of steam, with fewer open positions and less money to spend. What’s more, the government’s outsize contribution to headline payroll numbers has obscured slower hiring elsewhere in the market. “If government hiring steps to the side, there is a risk that the unemployment rate could move up more than it already has,” says Michael Feroli, chief U.S. economist at J.P. Morgan....
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