Texas, the home of Republican presidential candidate Gov. Rick Perry, has had the most net government job growth since the start of 2007, adding 76,000 federal, state and local government jobs. The increasing public sector workforce is a partial explanation for the “Texas miracle” that Perry has touted on the campaign trail.

California has lost the most government jobs, a net total of 116,600.

The following graph from the St. Louis Federal Reserve, which shows total government employment in New Mexico since 2007, reveals that public-sector jobs in the state have been decreasing since they peaked in 2010 while the U.S. Census was underway.

Government job losses have been a nationwide trend in the past year, due in large part to state governments cutting spending in order to balance their budgets. New economic growth figures released by the Commerce Department today show that U.S. Gross Domestic Product grew at an annualized rate of 2.5 percent over the summer, a slight increase from earlier in the year. However, the increase came in spite of  state and local government budget cuts, which reduced total government spending by 1.3 percent and were a net drag on GDP growth.

This graph shows the rate of change of all government vs. all private sector jobs in the United States since the start of 2011.

As the graph shows, 2011 has been a year of slow but steady increases in private sector jobs, which have been offset by a persistent decline in the number of government jobs. While New Mexico and other states have increased the number of government jobs, it hasn’t been enough to make up for other states’ huge public sector job losses.

While economists have taken it as a foregone conclusion that China is set to dominate the world economy eventually, Arend reports that they tend to use figures with little mooring in the real world of international markets. The biggest difference in the IMF data versus traditional forecasts is that the IMF is using gross domestic product based on purchasing power parity (PPP), as opposed to GDP based on official exchange rates.

GDP (based on PPP) is assessed by looking at a country’s earnings and spendings in fixed, standard terms — usually using the U.S. dollar as a metric, as it remains the world’s reserve currency and the benchmark currency for the world economy. Earlier forecasts have been off the mark, according to the IMF and Arend, because they’ve failed to use these figures, which paint a more accurate picture of a country’s economic power relative to the rest of the world than do GDP figures based on official exchange rates.

China has for years enforced price controls to keep the value of its yuan renminbi (RMB) artificially low. This has allowed it to manufacture and export goods at prices irresistibly cheap to global consumers. By seizing upon cheap Chinese goods, the U.S. ultimately sealed its own fate, delivering the purchasing power of the world’s largest economy to Chinese manufacturers.

Arend reports that the attendant rise of the Chinese economy will have major effects very soon:

The IMF in its analysis looks beyond exchange rates to the true, real terms picture of the economies using “purchasing power parities.” That compares what people earn and spend in real terms in their domestic economies.

Under PPP, the Chinese economy will expand from $11.2 trillion this year to $19 trillion in 2016. Meanwhile the size of the U.S. economy will rise from $15.2 trillion to $18.8 trillion. That would take America’s share of the world output down to 17.7%, the lowest in modern times. China’s would reach 18%, and rising.

Just 10 years ago, the U.S. economy was three times the size of China’s.

Later, Arend reports that the rise of China has already quietly been one of the driving factors in growing income disparity in America:

“There are two systems in collision,” said Ralph Gomory, research professor at NYU’s Stern business school. “They have a state-guided form of capitalism, and we have a much freer former of capitalism.” What we have seen, he said, is “a massive shift in capability from the U.S. to China. What we have done is traded jobs for profit. The jobs have moved to China. The capability erodes in the U.S. and grows in China. That’s very destructive. That is a big reason why the U.S. is becoming more and more polarized between a small, very rich class and an eroding middle class. The people who get the profits are very different from the people who lost the wages.”

• Real gross domestic product (GDP) is now expected to advance 2.6 percent in 2010, down from the panel’s May prediction of 3.2 percent. … [M]ost of the markdown reflects worse-than-expected summer results and a dimmed outlook.
• Seventeen percent of survey respondents characterized the expansion as “uneven, dominated by stimulus policies.” That is up from just 5 percent in May. The dominant characterization of the economic “recovery” — held by 37 percent of the NABE Outlook panel — was that of an expansion remaining “subpar as severe wealth losses and onerous debt burdens inhibit spending and lending.”
• Consumer spending is expected to remain modest throughout the forecast horizon due to weak job gains, persistently high unemployment, and negligible growth in household net worth reflecting only small gains in the stock market and home prices. This year’s holiday retail sales are expected to be especially weak, rising only 2.5 percent from last year.

And what’s the problem with low growth? For one, it means more unemployed workers, who do not contribute to economic growth and whose skills fade over time. And the longer that mass of unemployed workers remains unemployed, the harder it is to reintegrate them into the economy.

[Gordon] belongs to the committee of distinguished economists who officially declared on Sept. 20 that the U.S. recession ended way back in June 2009. Don’t mistake that pronouncement for optimism. According to Gordon’s research into the long-term determinants of growth, America’s next two decades are going to be disappointing. He predicts that between 2007 and 2027, gross domestic product per capita will grow at the slowest pace of any 20-year period in U.S. history going back to George Washington’s Presidency. Although the data he examined closely go back only to 1891, he says that based on his knowledge of early American economic history, he thinks it is fairly safe to predict that the period will witness the slowest growth ever in GDP per capita and, therefore, American living standards.

Why? The Baby Boomers will retire, meaning millions of them will stop contributing to the economy and will start living off of state programs like Social Security, disability insurance and Medicare. No technological revolution, like the internet, is on the horizon to juice growth either.

What’s worse is that the spell of gloom Gordon predicts would come after, well, a spell of gloom. For the decade before the recession, the United States’ GDP has grown at a reasonably healthy clip. But most workers have experienced no income gains at all. Instead, the income gap has widened, with wealth accruing disproportionately to the very, very well-off.

The Bureau of Economic Analysis knocked 0.8 percentage point, about $25 billion, off of the GDP figure to account for an upward revision to imports and a downward revision to exports and private inventory investments — essentially, business restocked and rebuilt a bit less than the government first guessed.

The numbers give context for a major speech by Ben Bernanke, the head of the Federal Reserve, at 10 a.m. Speaking at a conference, Bernanke might outline new policy measures by the Fed to gin up recovery. The slow pace of GDP growth implies a strong stall-out and poor job growth for the remainder of the year.

The bill is considered the Democrats’ last chance to enact any form of stimulus before the November mid-term elections, once the state aid bill becomes law next week. It creates a $30 billion lending fund to encourage small community banks to grant cheap loans to small businesses. It also includes a number of other provisions aimed at helping small businesses thrive and hire: $12 billion in targeted tax cuts and an increase in Small Business Administration loan limits, for instance.

“It is so important to pass this jobs bill for America’s small businesses. That’s where most of our jobs are created. And small businesses have been especially hard-hit by the economy,” Obama said at Gelberg Signs. “And yet, a minority in the Senate is standing in the way of giving our small businesspeople an up or down vote on this bill.  And that’s a shame.  These kinds of delays mean contracts are being put off, debts are adding up, workers are going without a job –- and we can’t afford it.  We need to do what’s right, not what’s political, and we need to do it right now.”

But today, the Senate left without voting on the provision — though Sen. Harry Reid (D-Nev.) has paved the way for the Senate to take it up as soon as it returns from the August recess on Sept. 14. Yesterday, he filed for cloture, meaning the Senate will vote on whether to end debate the day it returns. Over the recess, Senate Democrats hope to convince Sens. George Voinovich (R-Ohio) and George LeMieux (R-Fla.) to vote for cloture, which requires 60 yeas in the Senate.

Republicans have not supported the bill because they have argued that Reid has not given ample enough time for them to offer amendments. Reid prevented Republicans from offering amendments because they kept offering controversial and non-germane provisions, such as a permanent extension of the Bush tax cuts. The bill has been held up for four weeks.

To win over Voinovich, LeMieux and possibly others, Senate Democrats have assured Republicans a vote on an amendment by Sen. Mike Johanns (R-Neb.). The amendment, pressed for by small business organizations and supported by some Democrats, takes on the 1099 information reporting requirement expanded by the health care reform bill, signed into law this spring.

The expanded reporting requirement, due to take effect in 2012, requires businesses to document any purchase of more than $600 in goods or services to the IRS — meaning a lot more paperwork. The Johanns amendment strips that requirement for purchases under $5,000. It pays for the estimated $10 billion in lost tax revenue in part by eliminating the $15 billion Prevention Trust Fund, which pays for cancer screenings, smoking secession and other programs.

Democrats refuse to kill the Prevention Trust Fund. So, they have offered a substitute amendment — keeping most of Johanns’ changes to the 1099 reporting requirement, but paying for it by repealing taxes on the five biggest oil companies. An explanation from Senate Finance:

[The Democrats' plan] would repeal Section 199 of the tax code, which currently allows these corporations to deduct six percent of their income from oil and gas production from their tax liability, effective December 31, 2010.  This repeal would only apply to the five largest corporations with more than $1 billion of before-tax income.

The five major integrated oil companies, which include BP, had a combined profit of $25 billion in the first quarter of 2010.  And, in the five years since enactment of the Section 199 deduction, these major integrated oil companies have posted $521 billion in profits.  The profitability of these companies has been so robust that in the first quarter of 2009, when the U.S. GDP shrank by 6.4 percent and corporate profits decreased by 5.25 percent, these companies still earned more than $13 billion in profits.  Furthermore, it is not clear the goal of this deduction, which is to improve America’s energy security by promoting domestic production, has been reached.   When the Section 199 deduction took effect in 2005, domestic oil production averaged about 5.5 million barrels per day.  Now, five years after the deduction took effect, domestic oil production has actually fallen slightly, to 5.48 million barrels per day.

In a statement today, referencing the dismal jobs report, Reid pushed Republican senators to support the bill. “More work lies ahead of us to repair our economy, and we cannot rest until every worker who wants a job can find one,” Reid said. “But Republicans must stop putting special interests before working Americans and work with us to pass bipartisan measures that will energize small businesses and the middle class, the engine of America’s economy. Small businesses are responsible for creating almost two-thirds of the jobs in our country, and I hope that every senator will return to Washington in September ready to pass critical support to boost our nation’s small businesses.”

Nonresidential fixed investment drove growth, increasing at a 17 percent annual pace, up from a 7.8 percent annual pace in the first quarter. Businesses increased their purchases of equipment and software spending by 21.9 percent. Consumer spending, which makes up about 60 percent of the economy, grew at only a 1.6 percent annual pace — worryingly slow. That is a sign that unemployment, underemployment and concern about the weak recovery are keeping consumers from opening their wallets; it is also a cause and an effect of the lagging recovery.

Without those extraordinary measures, they say, the United States’ GDP would be 6.5 percent lower, the unemployment rate would be 3 percentage points higher, there would be 8.5 million fewer jobs and the economy would be experiencing deflation. Blinder is a professor at Princeton and a former Fed official. Zandi is the chief economist at Moody’s Analytics and a former adviser to Sen. John McCain’s (R-Ariz.) presidential campaign.

The economists also note that the stimulus — the $787 billion American Reinvestment and Recovery Act — had less impact and proved less important than the government’s monetary policy and financial-market stabilization measures, like the Fed buy-up of mortgage-backed securities.

Zandi and Blinder write:

It is understandable that the still-fragile economy and the massive budget deficits have fueled criticism of the government’s response. No one can know for sure what the world would look like today if policymakers had not acted as they did — our estimates are just that, estimates. It is also not difficult to find fault with isolated aspects of the policy response. [...]

While all of these questions deserve careful consideration, it is clear that laissez faire was not an option; policymakers had to act. Not responding would have left both the economy and the government’s fiscal situation in far graver condition. We conclude that [Federal Reserve Chairman] Ben Bernanke was probably right when he said that “We came very close in October [2008] to Depression 2.0.”

Underlining that gross domestic product measures are often not a good guide to an economy’s well being, the bank said in a research note its best guess is that the impact on the U.S. economy of BP’s Gulf Coast spill would be minimal.

“The spill clearly implies a lot of economic hardship in some locations, but given what we know today, the magnitude of these setbacks looks dwarfed by the scale of the US macroeconomy,” said chief U.S. economist Michael Feroli. If anything, he added, U.S. GDP could gain slightly from it.

The six-month moratorium on deep-water drilling may cut U.S. oil production by around 3% in 2011 and cost more than 3,000 jobs, according to J.P. Morgan’s energy analysts. Commercial fishing in the Gulf is also likely to suffer, but that’s only about 0.005% of U.S. GDP. The impact on tourism is the hardest to measure, although it’s fair to expect that many hotel workers who lose their jobs will find it hard to get new ones.

Still, cleaning up the spill will likely be enough to slightly offset the negative impact of all this on GDP, J.P. Morgan said. The bank cites estimates of 4,000 unemployed people hired for the cleanup efforts, which some reports have said could be worth between $3 and $6 billion.

The J.P. Morgan analysts are right that the oil spill will have outsize impact on a few industries, impacts partially offset or even entirely replaced by new economic activity. Vacationers aren’t staying in those Louisiana hotels, but clean-up workers and lawyers and the National Guard are.

My concern is for the hangover. Five years from now, there won’t be anymore clean-up workers, and the federal government and BP won’t be funneling millions of dollars to the Gulf Coast. But my guess is that the fishing industry and the tourism industry will still be suffering from the impacts of the Deepwater Horizon disaster. How long until you would want to swim on one of those beaches, or eat one of those oysters?

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, and nonresidential fixed investment that were partly offset by negative contributions from state and local government spending and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the first quarter primarily reflected decelerations in private inventory investment and in exports, a downturn in residential fixed investment, a larger decrease in state and local government spending, and a deceleration in nonresidential fixed investment that were partly offset by an acceleration in PCE and a deceleration in imports.

Spending by regular consumers, rather than businesses, continues to pick back up. That’s good, as consumer spending accounts for some 70 percent of the economy and will help encourage businesses to hire more workers. The report showed that consumers increased spending about 3.5 percent in the first quarter, up from a 1.6 percent increase in the fourth quarter. And business’ post-tax earnings jumped too, up 9.7 percent, after rising 8.2 percent during the last quarter of 2009. Post-tax earnings are 42.7 percent higher year-on-year.