Job Growth in the Private Sector Contrasts with Federal Cuts
While the federal government is reducing its workforce, private employers continue to add jobs, even when excluding health insurance roles. Recent viral statistics suggesting a labor market collapse have garnered considerable attention on social media, but the actual data presents a different picture.
For instance, private companies added 172,000 jobs in January, contrasting with a drop of 42,000 in government jobs. Among the private sector additions, medical benefits accounted for 82,000 positions. When health care jobs are taken out of the equation, this translates to 90,000 jobs added outside the health sector. Over the past year, the health industry saw an increase of about 437,000 jobs, which is noteworthy but doesn’t indicate that other sectors are declining. In fact, private employers in other industries saw an addition of around 178,000 workers, showing modest but meaningful growth.
This confusion often arises from how discussions about the labor market are framed. Data frequently include total nonfarm payrolls, which encompass government jobs, and then subtract health-related categories. Consequently, cuts in federal employment might seem to indicate weakness in the private sector, obscuring the reality of what’s transpiring in the broader economy.
Even beyond health care, job openings and hiring remain robust. According to the Job Openings and Turnover Survey, there were 6.5 million job openings and 5.3 million hires in December, which reflects ongoing job movement and recruitment across different sectors. While job openings declined by about 966,000 over the past year, they certainly haven’t vanished.
On the wage front, there’s a general upward trend. The average hourly wage for all civilian workers was $37.17 in January, a rise from $35.84 the previous year. Wages for production and non-supervisory staff increased from $30.79 to $31.95, indicating that despite a cooling job market, employers are still trying to attract talent.
The picture may be even simpler when you consider the unemployment rate. In January, it was 4.3 percent—quite close to what we consider full employment. Rapid growth in one sector often means slower growth in others, but not due to lack of demand. It often reflects competition for a limited pool of workers, which can drive up wages.
Changes in demographics and declines in immigration have also shifted the dynamics. Researchers from the Dallas Fed suggest that the monthly job growth needed to maintain a balanced labor market will drop from approximately 250,000 in 2023 to just 30,000 by mid-2025. This adjustment isn’t necessarily a sign of economic weakness; rather, it might indicate that more modest wage increases may be on the horizon coinciding with a tighter labor market.
A broader measure of labor force utilization, the U-6 rate, has also fallen to 8.0% from 8.7% just two months prior, suggesting that the labor surplus is decreasing.
However, this doesn’t imply that the job market is thriving overall. Hiring remains concentrated primarily in certain service industries, particularly health care, and recruitment is showing signs of slowing. The overarching narrative that “everything except health care is shrinking” relies on blending non-health care job calculations with government layoffs, which skews the interpretation of the private sector’s health.
In a landscape affected by an aging population and the previous administration’s immigration policies leading to cuts in federal jobs and fewer workers entering the labor force, this statistical oversimplification might misrepresent a tightening job market, suggesting widespread weakness even as private employers persist in hiring and increasing wages outside of health care.
