Obama’s Economy Sputtering Out

New reports reveal private sector job creation lowest in seven years, manufacturing wages flatlining

This morning’s August U.S. jobs report from the Labor Department has been one of the most eagerly anticipated sets of economic data in recent months. The reason? It’s widely assumed that the Federal Reserve will rely on it heavily to decide whether or not to raise interest rates later this month. It also demonstrates dramatically the importance of looking under the hood to understand the real state of the U.S. economy.

The headline figure was disappointing enough — showing only 151,000 net new jobs created by business and government, the third lowest total for this year. But the details reveal even more disturbing weakness in those sectors that represent the nation’s best hopes for long-term prosperity.

You don’t need to be an economist to recognize that this growing gap represents an immense amount of lost production — and a comparable number of lost jobs.

The first clue to these problems entails the steadily faltering performance of the American private sector as a job-creating engine. These jobs are among the best measures of genuine economic strength and progress, since their numbers result largely from free market forces. In August, U.S. businesses added 126,000 jobs to their payrolls on net over July’s figure. (Both figures are still preliminary, and will be revised in the months ahead.) That was the private sector’s second-worst monthly employment performance of the year, beating only May, when the private sector actually lost 1,000 jobs.

Examining a longer period of time — to smooth out the short-term fluctuations that can distort the economy’s actual nature — confirms that private sector job creation is losing steam. During the first eight months of this year, it added up to 1.379 million on net. The eight-month numbers for the previous three years? All higher — 1.655 million, 1.856 million, and 1.622 million.

At the same time, even these figures are misleading, because the government’s definition of “private sector” includes big parts of the economy where activity (including hiring) depends heavily on politicians’ spending decisions. Health care services are the leading example. Stripping those industries from the standard private sector total produces even more feeble private sector jobs numbers.

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For August alone, it would reduce genuinely private businesses’ hiring from 126,000 to 87,000. For the first eight months of this year, private sector job creation would plummet from 1.379 million to 902,000 — the lowest total in several years.

Economy bulls could respond that all job creation is inevitably slowing because the unemployment rate has sunk so low — 4.9 percent, according to the August jobs report. It’s true that there’s a big, widely noted fly in this ointment — separate official figures that keep showing the share of working-age Americans who remain in the national employment market stuck at multi-decade lows. But even leaving this objection aside, the employment-generating strength of the “real” private sector still looks less and less impressive.

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Specifically, its share of total employment gains keeps falling. For the first eight months of this year, sectors of the economy mainly influenced by market forces created 62.12 percent of all the net new employment produced in America. Last year’s comparable total: 62.92 percent. And as recently as 2013, this figure stood at 83.91 percent.

As a result, the prominence of the government-subsidized private sector has continued to surge. From January through August of this year, it was responsible for 25.96 percent of all the jobs created in the economy. That’s higher than the 23.74 percent share for the first eight months of last year, and dwarfs the 16.45 percent figure for 2013.

Meanwhile, employment in the government proper (including federal, state, and local levels) has enjoyed outsized growth, too. From January through August this year, the American public sector increased its payrolls by 136,000 — or 9.37 percent of all job gains. Last year, government jobs accounted for only 5.37 percent of the total U.S. employment increase. Indeed, as recently as 2013, the economy was losing government jobs on net on a January-August basis.

The Labor Participation Rate, Explained.

The second clue to weakness in the American jobs market comes from the manufacturing sector. The August report reveals that industry remains mired in its worst jobs recession since the Great Recession. Employment is down on net since December 2014, and fell by another 14,000 in August. As a result, manufacturing has regained only slightly more than 36 percent of all the jobs it lost during that historic 2007-2009 downturn — whereas overall private sector employment is 5.47 percent higher than it stood at that recession’s December 2007 onset.

Wages lately have been a manufacturing bright spot. In recent months, they’ve been rising faster than those of the rest of the private sector (conventionally defined), and between August 2015 and last month, increased by 2.48 percent. But for the seven-plus years since the current economic recovery began in the middle of 2009, manufacturing wages have advanced by only 13.08 percent — well behind the overall private sector’s sluggish enough 16.21 percent improvement.

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And adjusting for the cost of living shows that manufacturing has been an even greater wage laggard. Inflation-adjusted wages for the sector are up a bare 1.21 percent during the current recovery. For the entire private sector, they’ve grown by only 3.98 percent.

To explain manufacturing’s worsening jobs performance — and after-inflation production levels that still haven’t returned to pre-recession highs — look no farther than the Census Bureau’s report on America’s July trade performance, which was also released this morning. These figures showed that the shortfall in manufacturing trade hit $74.83 billion — the second highest monthly total ever.

Consequently, the manufacturing trade deficit is currently running a little over two percent ahead of its rate in 2015 — when it set its latest all-time record, $830 billion. You don’t need to be an economist to recognize that this growing gap represents an immense amount of lost production — and a comparable number of lost jobs .

Alan Tonelson, who writes on economic and security policy at RealityChek, is the author of “The Race to the Bottom” (Westview Press, 2002).

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