Government hiring spree propping up the US job market

U.S. job growth has repeatedly blown past expectations since the start of the new year, but there has been a consistent factor underpinning those surprisingly strong figures: the government.

The most recent data from the Labor Department shows that employers added 303,000 jobs in March, easily topping the 200,000 gain forecast by LSEG economists. The unemployment rate inched lower to 3.8%, from 3.9% in February.

But digging deeper into the report reveals that the American government has been a major contributor of jobs since the beginning of the year – something that economists say is belying a strong labor market.

"It’s a little bit disconcerting when you see the fact that job growth is in sectors that are not necessarily your productive sectors," Jeffrey Roach, chief economist at LPL Financial, told FOX Business.

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Public sector jobs at the federal, state and local level rose by 194,000 during the first three months of 2024. That accounts for about one-quarter of all jobs created in January, February and March. By comparison, during that same time period in 2019 before the pandemic began, government hiring represented just 11% of all jobs created. 

"You never want to see the government be the major engine for hiring," Roach added. "They are quick to furlough, so it can kind of go both ways. You may see this massive rebound in hiring, but once there’s a slow patch, you might see a reversal of that trend."

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State and local governments are hiring teachers and police officers, while the federal government is onboarding TSA agents amid a post-pandemic surge in travel. 

The government experienced a severe drop in employment during the pandemic, when state and local governments – anticipating budget shortfalls – furloughed and laid off thousands of employees. Many workers also left their jobs for more competitive pay in the private sector, leaving the government to grapple with a labor shortage. 

While the private sector job growth slowed sharply from 4.3% in 2022 to 2.3% in 2023, the government has seen a much more rapid pace of hiring. Public sector job growth jumped from a modest 1% in 2022 to 2.7% in 2023 – the highest year-over-year growth rate since 1990, according to Fitch Ratings.

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That divergence suggests hiring is slowing down in the private sector – which includes jobs like manufacturing, research and development and construction – while it speeds up within the government. The trend is likely to continue in 2024.

"The post-pandemic recovery for government payroll did not begin until much later in 2021, because most government educational institutions maintained a remote-only system with minimal staff throughout 2020," said Olu Sonola, head of U.S. economic research at Fitch Ratings, in a report about government hiring.