Last month we reported that the 203K employment growth figure shown last month was more of a peak than the beginning of a liftoff for the U.S. labor market.

Based upon this forecast, it comes as no surprise that January’s employment report – up 74K over the prior month – is sharply below what simple moving-average-type analysts thought would happen.

VW Absolute Job Growth Employment

At the same time of the weakening employment report, the unemployment rate came in much better than expected at 6.7%.

VW Unemployment Rate

What is the story?

Well, most blame the weather, while others point to government policies like Obamacare.

Although these reasons – which appear to be the most popular – certainly explain part of the decline, there’s probably something deeper going on.

Decline in employment

Here are two more reasons for the decline.

First, as stated last month, the business cycle appears to be at the end of reaching a peak (just look at the Citigroup Economic Surprise Index), not the beginning of a climb towards peak. This is in contrast to the popular understanding that the economy is on the cusp of gaining strong momentum.

Second, government employment is slowly starting to trickle up – something generally not good for competing business interests.

Here is what federal, state, and local government employment has done since 2011.

Federal employment gains

On the federal level, the trend line has experienced a strong upward shift in recent months. In fact, federal employment experienced actual gains in November, as opposed to the employment declines for most of the 2013 calendar year. The lack of desire on the federal level to reduce the costs of government services – in this case through federal employment – is not a sign of encouragement for the future of the labor market.

VW Federal

On the state level, the trend has become even more positive – although weakened in December – indicative of state government’s revived desire not to reduce the costs of government services on a longer-term, broader scale.

VW State

Local government employment

Local government, the only one of the three government sectors to exhibit a negative growth slope, is still is positive-growth territory. The sector has weakened in two of the past three months, with December’s decline being about 0.64%.

VW Local

What is there to glean from this?

Well, is it not interesting that economy-wide employment has been relatively decent throughout most of 2013, a time when government employment growth was generally on the sidelines.

Just recently, government employment has started to gain strength, and interestingly, economy-wide employment is weakening.

Maybe all those economists who thought government employment only added to the employment base should rethink their goofiness? Maybe, just maybe, government employment acts as an impediment to individual initiative?