The Fed should look at private-sector employment. Layoffs at the government are a political decision, not the result of economic weakness.
By Wolf Richter for WOLF STREET.
The job losses at the federal government and at state governments have hit nonfarm employment all year, and hard. In 2025, the federal government shed 264,000 jobs, and state governments shed 47,000 jobs, combined 311,000 jobs, according to the Bureau of Labor Statistics today.
In December, as well as in November, federal government jobs edged up, possibly on large-scale hiring by ICE, after the plunge in October when the federal government shed an upwardly revised 179,000 workers, largely the result of workers who’d volunteered to quit earlier in the year but who, as part of their incentives to quit, had continued to receive their salaries until September 30. Civilian employment at the federal government in December and November, at 2.74 million, was the lowest since 2014.
Companies that lost government contracts, or whose contracts were reduced or paused, also laid off people, and those were private-sector jobs included in private-sector employment below.
The Federal Reserve needs to look at private-sector jobs. Layoffs at the government impact consumers and the economy, obviously. But those layoffs are a political decision by the White House, and are not the result of weak demand, slow consumer spending, or other economic changes. The Federal Reserve can do nothing to stimulate hiring at the federal government. So for its monetary policy decisions, the Fed should look at private-sector employment.
State governments shed 47,000 jobs in 2025, including another 7,000 in December, after the surge in the prior two years.
State government jobs are dominated by jobs at state universities, which are huge employers. For example, the University of California system employs 267,000 faculty and staff (data via University of California), nearly half of the state government’s total employees of 551,000 (data via BLS).
Job creation in the private sector has been weak, but positive in recent months.
Nonfarm private-sector jobs rose by 37,000 in December and by 50,000 in November. Over the past three months, they rose by 88,000 combined (even as total payrolls dropped by 67,000 over the same period).
The three-month average in December rose by 29,000 jobs (red line):
Total nonfarm payrolls, including government employment, rose by 50,000 in December from November.
October had been hit with the 179,000 federal government job cuts, which had caused overall nonfarm jobs in October to plunge by 173,000.
For the past three months combined, total nonfarm payrolls lost 67,000 jobs; the three-month average job loss in December was 22,000 (red line in the chart below).
Average hourly earnings rose by 0.33% in December from November (+4.0% annualized).
Three-month average hourly earnings rose by 4.1% annualized, at the top end of the 12-month range (red line):
Year-over-year, average hourly earnings rose by 3.8% in December.
The Household Survey data in the Jobs Report.
The above data is from the survey of establishments, which submit much of the data electronically every month. So a lot of the October data was collected, and the BLS backfilled it.
But the data below on the unemployment rate, labor force, etc. is collected via surveys from households. Surveys were not conducted in October during the government shutdown, and the data is missing forevermore. The November and December surveys were conducted.
The unemployment rate dropped to 4.38% in December, the lowest since August – at the low end of the historical range.
The unemployment rate reflects the number of unemployed people who are actively looking for a job divided by the labor force (people working or looking for a job).
The decline in the unemployment rate was a function of declines of both, the unemployed and the labor force:
- Number of unemployed: -278,000, to 7.50 million, lowest since August.
- Labor force: -46,000 to 171.5 million.
The prime-age labor force participation rate (25-to-54-year-olds) remained at a historically high 83.8% in December.
The prime-age labor force participation rate eliminates the issue of the retiring boomers. The overall labor force participation rate shows the percentage of the population that either has a job or is looking for a job. When people retire and stop looking for a job, they exit the labor force but remain in the population until they die. The surge of boomer retirements, which started about 15 years ago, has pushed down the overall labor force participation rate, as these retired boomers are still in the population but no longer in the labor force.
This very high prime-age labor force participation rate is a strong positive in the labor market.
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I read several reviews about the employment numbers and Wolf was the only writer that had an honest analysis. Other purposely omitted or just too lazy to do the work. Wolf is a national treasure.
100% agree.
As best as I can tell Wolf is apolitical.
He just helps us try to understand the numbers.
Economic weakness is one symptom of employment losses, Wolf, but the multiplier effect of job losses whether in the public or private sector is another probably larger indicator. The absorption rate of the public employees into the private sector will be interesting particularly if many of the furloughs were buoyed by comfortable severances.
Private employment grew by 700k this year, down from non-recession averages of 1.5 to 2 million in the last decade or two. And in the 8 months since April, it’s only 300k.
This would ordinarily be extremely weak, but as we’ve discussed here before, the 25-54 employment rate is still very high and the unemployment claims are very low.
So the new normal continues: very slow job growth, but no increased unemployment, which (assuming the data is now correct) means very slow population growth.
“Private employment grew by 700k this year, down from non-recession averages of 1.5 to 2 million in the last decade or two. And in the 8 months since April, it’s only 300k.”
Pretty accurate.
But it should be mentioned that pre-2002 (China Entry) 2 million net new jobs per year was very common (in non-recession years) and…more importantly, it didn’t take the 2012-2022 ZIRP’ing of interest rates to generate those 2+ million jobs year in and year out.
Even leaving aside housing bubble/bust 1.0 and the pandemic, the US labor markets have been pretty darn weak (relative to 1950-2000) – so the Mystery of the Pissed Off American really isn’t much of a mystery.
But you would basically never learn about these things from the Old Media.
Population growth in 2025 was very small — and some estimate that it might have been negative due to deportations and self-deportations. So how much does the job market need to grow when the population is growing only very slowly? You cannot compare that to decades ago when population growth (through births and immigration) was far bigger.
We received a “second notification” of a BLS jobs survey in the mail for our startup, never received a first notification, though the USPS delivery may be why. I went online to complete it. The NAICS designation was in our letter, but online was “NAICS 11111” and there was no where to upload the spreadsheet template that contains: job title, hourly wage, number of jobs. I get the sense from other’s replies to these workforce analysis posts, that govt. employees are expendable.
… Erika McEntarfer
Wolf – I need a private sector job. Maybe you could hire me as you ‘Comment Section Moderator’. My motto is ‘The rules are there are no rules’.
There’s a new yard sign gaining popularity with the DOGE crowd.
“Government workers and dogs, keep off the grass”
Government workers are usually very skilled with high level understanding of available tech and understanding of resolving problems. Should they not be well aqualified for work in the private sector? I see them as an asset waiting to be used by the private sector.
I appreciate the clarity and design of your charts and site. Subtle, efficient, spartan elegance.
Most economists lean towards no recession in 2026.
Those big government layoffs?
That’s POTUS taking bold action to finally trim the bloated DC bureaucracy after decades of fiscal mismanagement and kicking the can down the road by past admins.
Naysayers screamed that his bold policies would tank the economy, but he’s righting the ship with smart risks that cut waste today while setting up stronger growth for years ahead—proving the critics wrong without dropping the ball on current stability and growth.
No recession?
Well we’re due buddy. 2022 called. Said it’s been 3 whole years.
📞, pick that up.
Cuz it says stock loss! 📉
It’ll be ok tho, just prob will erase any 2024 and 2025 gains. You know for a nice fresh start! ☀️
Pharoah had better labor participation rates: The old men folks were stomping straw in the mud pits making bricks, old women were applying grease so that megalith stones could be slid into place. The final full employment was achieved by denying the “employees” straw to make bricks, leading to the order: “your women and children will glean the fields for stubble at night, but you tally shall not diminish by one.” Full employment and full shift employment as well, the Federal Reserve’s dream. Labor participation was so high that Moses had to fix it. Reference: The Ten Commandments movie.
Bullish take; new highs, Stock market continues with trying to broaden the companies participating in the bull. Yen made a new 52 week low. Willshire 5000 close out at 69,650. 69,000 was a quad top for resistance now it’s support, but we are less than 1% above 69Trillion on the willshire, so not to confident.
Bearish take. Majority greater than 75% of the trading days have sold red the last 15 minutes of each trading day. This is a bad sign. Institutional and smart money are selling the close for weeks now.
Buy the rumor sell the news with SCOTUS tariff? At close today and for week we had exactly 66.6% of SP 500 close above their 200 EMA according to StockCharts.(bearish IMO) I am still in 36 year cycle of the super bear like Japan 1989 and we had Panama 36 years ago. History is saying hello, pay attention to me! Enjoy :)