Last Thursday, the Pennsylvania Department of Labor and Industry (L&I) reported that unemployment edged up slightly to 7.5%, while nonfarm payrolls grew at a healthier pace, adding 14,600 jobs in June (here is the graphy summary form L&I).
Table 1 presents Pennsylvania's rank in terms of nonfarm payroll growth in the last three, six and 12 months. Compared to our analysis of the May job numbers, Pennsylvania's ranking improved somewhat in the last three and six months thanks to June's strong job performance.
Breaking the nonfarm payroll numbers down, most of the job growth was in three sectors, with Leisure & Hospitality adding 7,100 jobs (a gain of 1.4% over the month), the Government adding 9,000 jobs (a gain of 1.2% over the month) and Professional & Business Services adding 2,900 jobs (a gain of 0.4%).
Job growth in both Leisure & Hospitality and Professional & Business Services has been strong over the past six months, so the unusual number is the addition of jobs in the public sector.
To shed some light on this number, Table 2 presents in column two and three the change in not seasonally adjusted employment in the public sector from May to June of each year since 2000. Not seasonally adjusted means these are the counts of employees as they are reported to the Bureau of Labor Statistics.
As you can see, the public sector sheds jobs from May to June of each year. This is the effect of local governments like school districts starting their summer vacations. Because of the seasonal pattern in employment that is characteristic of many parts of the economy, it would be hard to gauge whether an overall employment gain or loss in any one month is due to a weakening or strengthening of the economy, or the result of the normal seasonal ebb and flow employment.
To eliminate the seasonal pattern of employment, the Bureau of Labor Statistics uses a statistical procedure to produce seasonally adjusted employment. In the second to last column of Table 2 is the change from May to June in seasonally adjusted employment in the public sector from 2000 to 2012.
In practice, when the statistical procedure sees fewer jobs lost from May to June than normal in the public sector, it interprets that trend as a job gain. In fact, in June of 2011, employment in the public sector declined by only 14,500 jobs when over the whole period the typical job loss was closer to 20,000 jobs. The seasonal adjustment process interpreted this to mean the public sector actually grew over the month. Of course, despite that large one-month gain, the public sector in 2011 actually ended up shedding over the course of the year more than 20,000 jobs, as school districts ultimately brought back significantly fewer teachers after the summer break in 2011.
Because this June local governments shed far fewer jobs than normal once again, the seasonal adjustment process interpreted that as a substantial gain in employment in June in the public sector. The reality is many school districts will begin in the fall with fewer staff, and we will see once again a large loss in public-sector employment in Pennsylvania in 2012 as a result.
This also means that June job growth in Pennsylvania was probably stronger on paper than it was in reality. Without subtracting out those 9,000 public-sector jobs, Pennsylvania's jobs deficit, or the difference between the number of jobs Pennsylvania has and the number it needs to regain its pre-recession employment rate, is 276,900. That number includes the 82,900 jobs Pennsylvania lost plus the 194,000 jobs the state needs to keep up with the 3.3% growth in population that Pennsylvania has experienced in the 54 months since the recession began.