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Pre-Gaming the Jobs Report

We’re going to have a really good jobs report tomorrow, at least on the surface. Most observers predict a gain of about 500,000 jobs. But the private employment numbers show a gain of only 55,000 or so. You can attribute the discrepancy to the addition of government jobs for the US Census:

For one thing, some 400,000 of those new jobs we’ll hear about Friday will be temporary Census jobs. Not to be sneezed at, of course. Welcome jobs to those who’ve got them. But this month, those same jobs will start going away. In May 2000, for instance, 348,000 people were hired for the Census. In June 2000, 225,000 of those jobs ended. By summer’s end, almost all this year’s Census hires will be looking for new employment. So when the job numbers come out on Friday, the ones to really look at will be how many people got hired by the private sector. It will not be surprising if those amount to 200,000 or more, a continuation of the trend that began picking up steam in February.

But the real test comes when the job-creation numbers for June and those that follow in the third quarter are released. We’ll certainly see positive figures each month until year’s end and beyond. But short of some miracle that persuades Congress to begin a new Works Progress Administration (or a Civilian Cleanup Corps for the Gulf of Mexico), we’ll be totally dependent from here forward on private-sector hiring to put millions of out-of-work people back on the payroll. And, the general outlook – with some exceptions – is that this simply won’t be enough to improve the situation in the next two years for the majority who have lost jobs.

I hope that 200,000-plus private sector jobs were created in May, but ADP isn’t showing that right now.

The other factor here is that, while temporary federal government jobs are rising because of the Census, permanent local government jobs are going away. State budget cuts could lead to as many as 900,000 jobs lost in 2010. And Congress decided last week to do nothing about that, cutting money in a jobs bill for the states to balance their Medicaid budgets. That has a ripple effect throughout the state fiscal picture, because they had built that money into their preliminary budgets and now have to scramble to replace it:

With the federal deficit a growing political liability, lawmakers in Congress are backing off plans to send more aid to financially strapped states, putting in jeopardy billions of dollars that California and others were counting on to balance their budgets.

The potential loss of funds is a significant setback for Gov. Arnold Schwarzenegger and state lawmakers, who may not see nearly $2 billion in federal assistance that they intended to use to help bring California out of the red.

The money was to be California’s share of $24 billion in proposed assistance, mostly to cover healthcare spending, spread among all states. Budget experts say that is enough to wipe out about one-fourth of the combined state budget shortfalls.

Congress will have another opportunity to inject some funding into the states with the proposed $23 billion to save up to 300,000 teacher jobs. But that’s not looking likely at this point.

Without these steps, state budgets will hack away at their payrolls, while at the same time the Census jobs through the Commerce Department will wind down, right as the stimulus package starts to decrease in effectiveness as the last of the money goes out the door. And if private hiring doesn’t pick up, the June jobs report will be quite a bit worse than May, and so on.

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David Dayen

David Dayen