Austerity by default

America is undergoing a modest dose of austerity, but mostly by default. Private sector employers created 84,000 private sector jobs in June, while government positions fell for a fourth month in a row. In fact, government pink slips have been a significant feature in the statistics since the February 2010 trough, which itself followed a hiring boom. Wait until Uncle Sam actually, and inevitably, tightens the fiscal belt.

June’s employment gains were concentrated largely in the service sector, with professional and business services adding 47,000 jobs, of which 25,000 were temporary jobs. That suggests that the uncertainty surrounding the election and the year-end “fiscal cliff” may be dampening capital investment and hiring. Those jobs requiring the least long-term commitment from employers are the ones most readily available.

Public sector employment declined by 4,000 in June, and has declined by 528,000 since the employment nadir two and a half years ago, providing an offset to the 4.4 million private jobs gained during the period. From 2007 to 2010, the private sector lost 8 million jobs and government added 264,000. That suggests something of a wash between the modest “stimulus” of the crisis years and the “austerity” of the past two.

But so far, on an absolute and relative basis most of the cuts in public sector payrolls have come from cash-strapped local governments. They have shed 2.6 per cent of their February 2010 job levels, or 377,000 of the total. That compares with 2.3 per cent at the federal government and 1.7 per cent among states. However the “fiscal cliff” of higher taxes and spending cuts looming in January 2013 promises sharply increased austerity at the federal level, including sharp cuts to defense spending.

A lame-duck Congress may find a way to push back some of these automatic spending cuts and tax increases. But no compromise will be feasible without a disproportionate chunk taken out of the former. Whether it’s President Mitt Romney or Barack Obama in charge a year from now, next June’s jobs report may not be much different from today’s.