Archive for Tuesday, June 7, 2011

Usually a job generator, localities slow economy

June 7, 2011


— In a healthy economic recovery, states and localities start hiring, expand services and help fuel the nation’s growth.

Then there’s the 2011 recovery.

The U.S. economy is moving ahead, however fitfully. Yet state and local governments are still stuck in recession. Short of cash, they cut 30,000 jobs in May, the seventh straight month they’ve shed workers. Rather than add to U.S. economic growth, they’re subtracting from it.

And ordinary Americans are feeling it — from reduced services to fewer teachers, police officers and firefighters.

The Great Recession officially ended two years ago this month. By the same point during previous recoveries, state and local governments were engines of growth: In the two years after the 1990-91 recession ended, for example, they’d added 430,000 jobs. At the same point after the 2001 recession ended, they had added 249,000.

This time is different. More than 467,000 state and local government jobs have vanished since the recession officially ended in June 2009, including 188,000 in schools.

Few see the pain subsiding soon. Mark Vitner, senior economist at Wells Fargo Securities, expects state and local governments to slash 20,000 to 30,000 jobs a month through the middle of 2012.

Joel Naroff of Naroff Economic Advisors notes that when states cut spending to balance their budgets, as required annually, a ripple effect multiplies the damage: Companies that do business with states and localities suffer. These companies, in turn, scale back their own hiring.

“There’s a whole slew of private companies that have to cut back when they don’t get the (government) contracts they had been getting,” Naroff said. “You can’t balance a budget and say everything’s going to be beautiful.”

Moody’s Analytics estimates that each job in state and local government supports an additional 1.3 jobs elsewhere in the economy.

The Great Recession of 2007-2009, the longest and deepest downturn since the 1930s, dried up state and local tax revenue. It also escalated demands for social programs like Medicaid and unemployment benefits and “ate through their rainy-day funds,” notes Michael Gapen, senior U.S. economist at Barclays Capital.

For a while, federal stimulus spending cushioned the blow to state and local finances. But that money is running out. And it probably won’t be replenished. The federal government is preparing to cut its own spending to shrink huge budget deficits.


Lee Eldridge 7 years ago

Dems keep saying the Reps have no ideas. It's not that the Reps don't have ideas, the Dems just don't like "free market" ideas that don't involve expanding the government. Just read this yesterday.

Bob_Keeshan 7 years ago

No no no no no.

When you get the government out of the way, the economy will boom. Public sector job growth is the number one enemy of economic growth.

Past history is no indicator of future performance. This new approach, no matter how untested, is going to succeed.

This article is wrong because it relies on economic data. A well written article would have relied on "free market" ideas. Ideas are the way out of this recession, not well tested past practices backed up by sound economic data.

just_another_bozo_on_this_bus 7 years ago

Government is now shrinking rapidly, which has been the Republican wet dream for at least the last 30 years.

And is the economy recovering? No. Is the "free market" picking up the slack in providing the services once provided by government? No.

But it will have the true desired effect-- the continued massive transfer of wealth and power to the already wealthy and powerful, at the expense of everyone else.

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