Why Obama's Wrong About the Private Sector 'Doing Fine'

Private-sector firms have lost 10 times as many jobs as the public sector.


President Obama could easily have corrected himself after saying in a recent press conference that "the private sector is doing fine." Had he said big business is doing fine, rather than the private sector as a whole, it would have been hard to argue with him.

But Obama and his campaign aides have stuck to their guns, insisting that the private sector is mounting a steady comeback following the Great Recession. In a series of TV appearances, Obama's senior adviser David Axelrod defended Obama's remarks while trotting out statistics about how many jobs the private sector has added over the last couple of years, telling Candy Crowley of CNN that the private sector is "certainly doing better than the public sector."

[Slideshow: 5 Reasons Obama Is Wrong About Business 'Doing Fine']

Obama's Republican opponent, Mitt Romney, has pounced on this weird defense of a still-struggling economy, and generated some new TV ads that seem intended to make sure every voter can recite Obama's six-word defense of the private sector by election day. In this instance, Romney's criticism is justified because Obama and his aides seem oblivious to some basic facts about the economy. Such as:

Employment is still deeply depressed. Obama's defense of the economy rests on his claim that it has created 4.3 million jobs over the last 27 months, and 800,000 so far this year. That's true, but selective. The "last 27 months" dates the count to March of 2010--the month employment bottomed out--making the gain look larger than if you picked another starting point. Since the beginning of 2008, for example, which is around the time the recession began, the economy has lost more than five million jobs. If the economy had been growing at a normal rate, an additional six or seven million people might be working today.

[Related: Why Obama Is Right About Business 'Doing Fine']

The public sector is actually doing much better than the private sector. Since the beginning of 2008, the private sector has lost about 4.6 million jobs. During the same time, the public sector—meaning federal, state and local government—has lost just 407,000 jobs. The private sector also employs more than five times as many workers as the public sector does, so it ought to be the main focus for anybody aiming to fix the economy. It's true that governments have begun to shed jobs lately, while the private sector has been adding them. But that's largely because a lot of teachers, cops and firefighters were kept on the job early in the recession thanks to stimulus spending, while private firms hacked their payrolls with abandon.

Blue-collar workers in the private sector are hurting the most. The two segments of the economy that have lost the most workers are construction—down by nearly two million jobs, or 24 percent, since 2008—and manufacturing, which is down by 1.8 million jobs, or 13 percent. Obama talks frequently about putting teachers, cops and firefighters back to work, but the people hurting the most are roofers, builders and assembly-line workers.

People are dropping out of the labor force. The percentage of adults who have a job or are looking for one is in alarming decline, with the labor force participation rate dropping from 66.2 percent at the start of 2008 to 63.8 percent today. That's back to levels from the 1970s. The trend probably means that a lot of people have given up looking for work, and will end up dependent on public assistance funded by a shrinking base of taxpayers. That's hardly a sign of a vibrant private sector.

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Small businesses are reeling. Small business optimism has emerged from the cellar, but it's still at recessionary levels, according to surveys from the National Federation for Independent Business. Spending and hiring plans are extremely weak, which is bad news because small and medium-sized businesses create the majority of new jobs in the economy. Big businesses, by contrast, tend to consolidate employment via mergers and acquisitions and various types of scaling and streamlining. Some pockets of the private sector are actually doing okay. They're just not the ones where most Americans work.

Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.