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Why Private Job Creation Is Even Slower Than It Looks

By Jeff Cox, Senior Writer

NEW YORK ( CNBC) -- Private-sector job growth relied on to fuel the employment recovery is even weaker than it looks, according to one economic expert who says government subsidies distort the true picture.

The Bureau of Labor Statistics on Friday put non-government nonfarm job creation in July at a much better-than-expected 172,000, which helped lift investor sentiment even though the total headline unemployment rate rose to 8.3%. (The total nonfarm payrolls gain was 163,000 as government lost 9,000 jobs.)

But Alan Tonelson, research fellow at the U.S. Business and Advisory Council, said the number isn't as good as it looks because the heavily subsidized health services industry generated 38,000 jobs, or more than 22% of the total.

"It's certainly weaker than it appears if we believe that the recovery and the entire U.S. economy should be propelled overwhelmingly by the private sector, by private capital, by private markets, by market forces," Tonelson said in an interview.

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"That's not to say that we don't need government spending or that government doesn't provide many useful services," he added. "But I don't think most Americans and I'm certain most economists would not argue that the strength of the U.S. economy and its future prospects are determined significantly by the strength of the public sector."

Though the number of industries that receive government subsidies is expansive, Tonelson boils his research down to the most identifiable in government employment data: Health care services, private educational services and social assistance agencies.

Since the recession, as defined by the National Bureau of Economic Research, ended in June 2009, such jobs have accounted for 1.144 million of the total 3.384 million private sector jobs created.

That means that the non-subsidized private sector generated 2.24 million jobs -- considerably less than the more than four million positions President Obama trumpets on the campaign trail.

Still, Tonelson maintains that he has no political axe to grind.

Rather, he believes policy makers and the public need to make sure they're getting the clearest picture possible about the real strength of the private sector.
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