Local Government Employment May Have Turned a Corner

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After falling from August 2009 to February 2012, local government employment may finally have turned a corner in the last four months.

Since February total local non-education employment has increased every month, according to seasonally adjusted data from the U.S. Bureau of Labor Statistics.

“Local general government payrolls . . . have now grown for four consecutive months and are now about 30,000 greater than the February 2012 post-recession low for this sector,” wrote Chris Mauro, RBC head of U.S. muni strategy.

On a non-seasonally adjusted basis, local governments added 204,900 in June, according to Mauro. “This was the largest amount of workers added to local government payrolls in any June since 2001,” he said. “Similarly, in May 2012, local government payrolls saw their largest unadjusted May increase since 2008.”

Mauro said he believed a few more months of payroll data was needed before being sure that local government payrolls had turned a corner. If they have, he says this would be a negative credit signal.

“If local government employment continues to be flat to modestly up throughout August, September and October of this year, it will be a clear sign that local governments, in general, believe that they have no more room to cut despite the fact that they continue to face considerable fiscal headwinds,” Mauro wrote. “Therefore, rather than sending a positive credit signal, we think that this possible bottoming in employment increases the potential for severe local government fiscal stress in the event the U.S. falls back into another recession next year.”

Dan White, economist for Moody’s Analytics, saw things differently, saying, “The fact that job losses appear to be at least moderating is definitely a sign of improved financial health for local governments.” However, local non-seasonally adjusted non-education employment always goes up in the spring, he noted. Only the June 2012 non-seasonally adjusted number is up on a year-by-year basis and that may prove to be an anomaly.

Several factors make Fitch Ratings managing director Amy Laskey cautious about attributing too much to local government employment figures. “I think it’s possible that some local governments have begun to feel the fiscal squeeze easing slightly and/or felt they had over-compensated by reducing staff more than needed. We are not generally hearing either of these from issuers, though.”

State and local government non-education employment and local government education employment have continued to decline. Both reached peaks for the last four and half years in summer 2008 and have been generally declining since then.

State education, consisting mainly of colleges and universities, has seen a 3.5% increase in employment since December 2007.

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