Are We About To See A Fiscal Policy Game-Changer In 2012?

A lot of time and effort is spent analysing what the Federal government will do with regards to spending. The bad news, from a growth point of view, is that there’s very little scope for the government to do more, for political reasons. The good news is that it’s too politically costly to actually cut spending, so despite the seeming salience of spending cuts, it never actually happens. And at least for 2012, government spending “cuts” won’t subtract too much from growth.

But what about at the state and local level?

Here we see ongoing austerity, and employment cutting. Every month, this subtracts from the total jobs-created number.

But even here, perhaps, there are some signs of a turnaround.

On Friday, the BLS said that public-sector cutting only subtracted 12K jobs, which is one of the lowest numbers we’ve seen in a while.

But overall still, the picture is still ugly.

Here’s a chart of year-over-year employment change in four categories:

  • State government (red line)
  • Local government (blue line)
  • Local government education workers (green line)
  • Local government non-education workers (orange line)


As you can see, all categories are showing year-over-cutting, but also, generally, cutting happening at a slower/moderating pace. The most “bullish” line is the orange line: Local government non-education workers, where the pace of cutting hit its wort level since early 2010, and has been improving ever since.

About 6.2 million people are employed locally in non-education jobs, and as you can see, this category is getting very close to no longer subtracting jobs on a monthly basis.


So the progress is tiny, but it’s noticeable if you’re using employment as a decent proxy for the fiscal health of these state and local authorities.

Moreover, there are some anecdotal signs of “good” news.

From Calculated Risk:

How about this headline from Bloomberg this morning: Michigan Fiscal Agency Anticipates $735 Million Budget Surplus for 2011-12? This doesn’t mean the cuts are over because the budget assumes further cuts, especially for education. But it suggests progress.

There was a similar article about California a couple of weeks ago in the San Francisco Chronicle: California leaders say time for cuts may be ending. Once again there are more cuts coming, but the end may be in sight.

As Calculated Risk goes onto note, there’s a pretty good chance that in 2012 the fiscal “drag” will end, but given how much of a drag this has been, this is good news. By the end of this year, state and local governments might be adding to jobs and GDP again.