The Federalization of the States

The coverage of nonfarm payrolls is pretty exhaustive, so there isn’t much to add. The massive inflow/outflow of temporary census workers has not only distorted the underlying trends a bit, it’s also confused the reporting. The headline number is skewed by census hiring and firing, so news reporting services needed to come up with a new headline number. They chose “private nonfarm payrolls” as their metric. As several smart people have pointed out (Calculated Risk, David Rosenberg, TJ Marta, and a host of others), this “pro-forma” nonfarm payroll number isn’t comparable to the historical data series, because non-census government job trends can’t be overlooked. A comparable number would simply take out Census workers, not all government workers. Thus, private payroll gains of 71,000 were touted in the headlines, the comparable nonfarm payroll number ex-census workers for July was a paltry +12,000. The federal government fired 11,000 non-census workers and state and local governments dropped another 48,000 workers. The chart below shows the headwind to job growth posed by state and local government budget problems. To normalize the somewhat volatile monthly payroll changes, we look at the trailing 3 month average monthly change.

Don’t worry, the federal government is on the way: the House of Representatives votes today on an aid package already approved last week by the Senate that will provide $26 billion to state and local governments. This new $26 billion aid package will be added on to the pile of federal grants-in-aid to state and local governments, which was running at a seasonally-adjusted annual level of $525 billion in the 2^nd quarter of 2010.

Current receipts of state and local governments always dip during recessions, but at 25% of total current receipts, Federal aid to state and local governments is starting to look structural.