Business pages nationwide are still reeling from last week's dismal employment numbers. As the third month of lower-than-expected growth settles in, and as the future of the nation's own financial health gets contentiously figured out in Washington, it's becoming clear that the effect of the 2009 stimulus bill is all but over. Two stories last night reported on two different ways in which fading government spending hampers a return to shrinking unemployment and increased consumer spending. At The New York Times, Motoko Rich reported that "close to $2 of every $10 that went into Americans’ wallets last year were payments like jobless benefits, food stamps, Social Security and disability, according to an analysis by Moody’s Analytics," but that input is about to dwindle as state and federal benefits run out by the end of this year. At The Atlantic, Derek Thompson used data from the St. Louis Fed to make graphs that show a sharp decline in government jobs (federal, state, and local). Together, the two reports show the government is reducing spending, and as it does, economic indicators lag.
"Unless hiring picks up sharply to compensate, economists fear that the lost income will further crimp consumer spending and act as a drag on a recovery that is still quite fragile," Rich wrote. "Throughout the recession and its aftermath, government benefits have helped keep money in people’s wallets and, in turn, circulating among businesses. Total government payments rose to $2.3 trillion in 2010, from $1.7 trillion in 2007, an increase of about 35 percent." But Thompson pointed out that more than a third of the Recovery Act spending went "directly to states to help them pay their bills and keep their employees." Now that that's drying up, government employment has fallen off, as Thompson's graph illustrates.