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Sunday, November 10, 2013

State and local government austerity is over

by Calculated Risk on 11/10/2013 10:46:00 AM

On Friday, California State Controller John Chiang said

"[B]ecause higher-than-expected payroll withholdings and estimated payments are driving the good news [more state revenue], it signals that Californians are beginning to earn more, work more, and the Great Recession is becoming a faint image in the rear view mirror"
This "good news" is happening in many state and local areas (not all). This is a significant change from state and local governments being a headwind for the economy to becoming a slight tailwind.

Here are two graphs that show the aggregate austerity is over.

The first graph shows the contribution to percent change in GDP for residential investment and state and local governments since 2005.

State and Local Government Residential Investment GDPClick on graph for larger image.

The blue bars are for residential investment (RI), and RI was a significant drag on GDP for several years. Now RI has been adding added to GDP growth.

The red bars are the contribution from state and local governments.  Although not as big a drag as the housing bust, there was an unprecedented period of state and local austerity (not seen since the Depression). 

Now state and local governments have added to GDP for two consecutive quarters, and I expect state and local governments to continue to make small positive contributions to GDP going forward.

State and Local GovernmentThe second graph shows total state and government payroll employment since January 2007. State and local governments lost jobs for four straight years. (Note: Scale doesn't start at zero to better show the change.)

In 2013, state and local government employment is up 74 thousand through October.

Here is a table of the annual change in payrolls for state and local governments.

YearAnnual Change
State and Local Government
Payrolls (000s)
12013 through October

I think most of the recession related state and local government layoffs are over, and it appears state and local government employment has bottomed.  Of course Federal government layoffs are ongoing, but it appears state and local government austerity is over (in the aggregate).