From current data, it is clear there are no signs the US economy is currently facing challenges. Yesterday’s retail and food services sales confirmed that barring any downward revision to September’s estimates, the US consumer finished another strong quarter. But the headline numbers are probably not giving a completely correct picture of the health of the US consumer. Clearly, higher-income consumer sectors continue to engage in the economy due to strong interest income earnings, strong stock market returns, and thus a very strong increase in financial and housing wealth.
However, lower-income consumers are struggling, as shown by increased auto and consumer loan delinquencies. Business sector commentaries also show consumers penny-pinching and looking to save by changing brands and choosing more generic products. Yesterday’s retail and food services sales data also showed that the consumption of big-ticket items weakened considerably in September even though the overall retail report was relatively strong. These large discretionary purchases are typically the first indication of trouble in consumer land.
Hopefully, the Federal Reserve’s strong move in interest rates in September plus the 50 basis points of expected rate cuts—one 25 bp cut in November and another 25 bp cut in December—will bring down interest rates and allow some recovery in these discretionary sectors over the next several quarters. We are still expecting some weakening in economic growth over the next several quarters but continue to expect the economy to achieve a soft landing.
The Myth of Government Employment
Sometimes we are accused of being lenient on the US government in our presentations and speeches, but what we are is against misinformation. We could probably argue that the US government is not good at administering taxpayers’ money. But that label has fit both parties equally over the decades. As trained economists, we live and die by the numbers, and many of the things we hear and read are so way off that we feel that sometimes we have to intervene to settle the score.
For the record, one of us worked as a federal government employee. So, if I do not rely on the data, many will probably assume that I am biased. And, I do have very fond memories of my work with some exceptional colleagues in the federal government as well as the many great colleagues I have worked alongside within the private sector, which is the sector I have worked for during 97% of my career as a professional economist.
Back to our topic. One of the myths we have to tackle over and over again has to do with the size of the US government, which typically means the federal government. One way to measure the size of the US government is by looking at the number of workers. However, when we talk about the US government, we are not only referring to the federal government as is typically the case, but also to state and local governments. And if you measure the size of the different levels of government by the number of workers each one has, it is easy to see that the federal government is a highly efficient machine, as well as a very small one, at least by this measure!
The number of federal government employees in September of 2024 was about 3.0 million out of total nonfarm employment of more than 159 million, or barely 1.88% of the total. If we take out US Postal Service workers, the number declines to 2.4 million, which is about 1.5% of total nonfarm payrolls. 1 Furthermore, federal government employees are about 12.8% of total government workers while the rest are state and local government workers. By the way, federal government workers as a percentage of total nonfarm payrolls was 3.05% in January of 1939! (See the graph below.)
So, 87.2% of total government employment occurs at the state and local government levels, not at the federal government level. Thus, whenever people use federal government workers as scapegoats to criticize the federal government, they should remember that for the size of our economy, the size of our federal government workforce is negligible.
Furthermore, according to the Congressional Budget Office (CBO), of all the money spent by the federal government in compensation in 2022, “About 60 percent of that total was spent on civilian personnel working in the Department of Defense, the Department of Foreign Affairs, and the Department of Homeland Security.”2 Thus, we can criticize the US government for other reasons, but in terms of employment, federal government employment as a percentage of total employment has continued to decline. By the way, the spikes every ten years are due to temporary hiring for the US Census.
1: “These are civilian workers. The US Government also employs about 2.1 million in the military and another 700 thousand are employed by government enterprises. This information is from the CBO for 2022.
2: “Comparing the Compensation of Federal and Private-Sector Employees in 2022,” Congressional Budget Office, April 2024.
Comments