Big Government? Not According to December Jobs Report

The much anticipated December jobs report came out last week. The news was good, with the economy adding 252,000 jobs in December and the unemployment rate dropping to 5.6%. The 240,000 job additions were more than economists were expecting, and the unemployment rate fell more than expected.

One interesting aspect of the jobs report is that it suggests government’s role as a job creator is extremely low right now, something I consider to be a very good sign for the economy.

Adding to the good news was a revision of November’s jobs report. The November jobs report included 321,000 additional jobs. In the December jobs report that number was revised higher to 353,000.

In the final two months of the year, the economy added more than 600,000 jobs. I consider that to be indicative of a strong economic environment. The December jobs report capped off the best year for job creation since 1999.

Of course, critics cite large numbers of Americans leaving the labor force as the main reason the unemployment rate fell so much. They also point to the 2.8 million Americans who have been unemployed for longer than six months. These points are valid, but they ignore the net positive of nearly 3 million jobs being added in 2014.

Let’s turn now to the role of government in our economy. Though we’re not currently in a busy part of the election cycle, it’s not difficult to recall the rhetoric of the mid-term elections, or even the 2012 Presidential election.

Here are some of the refrains I remember best:

  • “You didn’t build that.” – Barack Obama
  • “Government doesn’t create jobs.” – Mitt Romney
  • “Osama bin Laden is dead, and General Motors is alive.” – Joe Biden

The conservative case is that ‘big government’ is spiraling out of control. The charts below come from the Heritage Foundation, a conservative think tank.

1.12.15 Heritage budget chart

From the perspective of the Heritage Foundation, the point of this chart is to highlight the importance of the GOP-led Budget Control Act in reducing federal spending. I like it because is shows the growth of government spending over the past 50 years.

As this spending has grown, so too has the national debt. The national debt is at record-high levels and shows no signs of slowing down.

National Debt breakdown 1.12.15

I don’t think it’s unreasonable or politically inaccurate for me to say that the charts above support a conservative thesis that ‘big government’ is growing out of control.

But buried within the December jobs report is an interesting fact. The percentage of workers in our economy that are employed by the government has fallen to a 50-year low.

It’s true. While government spending may be growing, the role of government in our economy – at least as it pertains to growth in the job market – is diminishing.

The chart below comes from Business Insider and illustrates the number of jobs the government is responsible for, measured as a percentage of the total job market.

1.12.15 Jobs Report Government Workers Chart

Though the government did add some jobs in December – roughly 12,000 – this modest increase was greatly outpaced by the private sector. As such, it pushed the percentage of total American jobs provided by the government lower, reaching a level not seen since August 1960 – just 15.6% of total American jobs.

Certainly this chart must be considered along with other data, such as the Heritage Foundation charts I shared above.

But when it comes to the job market, Romney is right: “Government doesn’t create jobs.” And Obama’s government clearly isn’t, as evidenced by the decreasing share of jobs provided by the government.

Meanwhile, the economy continues to add jobs, with 58 consecutive months of job growth as of the December jobs report. Whether or not you think this is a result of ‘big government’ getting out of the way, it’s pretty clear that the job growth of the past several years has been driven by the private sector and not the government.

I consider that to be a very positive trend for the economy. What it tells me as an individual investor is that the job growth we’ve seen during this recovery is real and not at the whims of a government’s desire to employ. It isn’t dependent on a single policy, President, or even Congress itself. Critics of the validity of the December jobs report have good points about the unemployment rate and the number of people still unemployed.

Job creation in America remains strong and the ripple effect of employment is far reaching throughout the economy.

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