Government Jobs Under the Microscope
Later today, the US payroll figures will be released. While these numbers reflect the pre-Trump period, going forward they may hinge on an unexpected factor: government employment. Once a steady backdrop to private sector growth, public sector jobs have increasingly become a crucial driver in the American labour market.
The numbers tell a compelling story. In the years leading up to the Global Financial Crisis, government job creation followed a positive trajectory. However, from the end of 2008 until 2022—a period marked by fiscal belt-tightening and budgetary constraints across many state and local governments—public sector employment shrank by roughly 189,000 positions, averaging around 1,000 job losses per month. Yet, in a dramatic turnaround over the past two years, government hiring has surged. State and federal entities have added 1.15 million jobs during this period, approximately 50,000 per month. In 2023 alone, 709,000 jobs were created, with a further 440,000 added in 2024.
This surge in public employment has significantly influenced headline figures. The national unemployment rate stands at 4.1 per cent; however, estimates suggest that without these 1.15 million government jobs, the rate might have been closer to 4.8 per cent. With private sector job creation perhaps showing signs of slowing, as indicated by softening JOLTS survey data, public hiring has played a crucial role in maintaining labour market stability.
Nevertheless, concerns remain about the sustainability of this trend. While fiscal stimulus and major public investment in infrastructure have driven the expansion, political resistance persists. President Trump has consistently criticised what he views as excessive government employment, arguing that it creates inefficiencies and burdens taxpayers. Similarly, Elon Musk has warned that unchecked government job growth could stifle private sector innovation by distorting market incentives and reducing competitive pressures. Given the warnings from the Department of Government Efficiency (DOGE), the question arises: is this surge in government jobs likely to reverse in a meaningful way?
For the Federal Reserve, the contrast between strong public hiring and a cooling private sector presents a dilemma. The Fed must determine whether government job creation has masked underlying private sector weaknesses—a factor that could influence the timing and scale of future rate cuts. It seems unlikely that government hiring will continue to offset private sector softness indefinitely. More likely, both sectors may contribute to a softer labour market, potentially giving the Fed more scope to ease rates than currently assumed.
Beyond monetary policy, the balance between public and private employment has wider implications. With tariffs reshaping trade flows and fiscal debates intensifying in Washington, the interplay between these two sectors will be pivotal in shaping the economy’s long-term resilience. Market observers will be watching closely to see if the current pace of public sector expansion is sustainable or if political pressures and fiscal shifts will force a reversal.
Ultimately, while the recent expansion in government employment has provided a significant buffer—helping to sustain a low unemployment rate—the long-term trajectory remains uncertain. The coming months will reveal whether a fundamental rebalancing of the US labour market is already underway or whether, like tariffs, this is merely part of a broader political strategy.
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