The message from those managing the economy could not be more clear — jobs are being created and the economy is strong.

Key points: Some economic data show domestic private sector demand is falling, with the public sector holding up the economy

Some economic data show domestic private sector demand is falling, with the public sector holding up the economy Economists say around eight out of 10 jobs created over the past year have been in the public sector

Economists say around eight out of 10 jobs created over the past year have been in the public sector The Government says the ABS figures are not an accurate measurement of public sector jobs growth

"When we came to government, unemployment was at 5.7 per cent," Treasurer Josh Frydenberg told the ABC last month.

"Today it's at 5.2 per cent. We've created 1.3 million new jobs."

At a media photo opportunity with Mr Frydenberg a couple of weeks ago, Reserve Bank governor Philip Lowe agreed the economy was solid.

"I agree 100 per cent with the [Treasurer] that the Australian economy is growing and the fundamentals are strong."

However, these comments are at odds with what some of the big banks' consumer and business surveys suggest about the current state of the economy.

"They sure as hell can do better, and fiscal policy and monetary policy will help," NAB's chief economist Alan Oster told PM.

"Whether it will turn around the consumer big time, that's a different issue."

The long-running Westpac-Melbourne Institute consumer survey found sentiment fell 4.1 per cent in July to a level below 100 points, suggesting shoppers are downright pessimistic, despite two interest rate cuts over the past two months.

Businesses are not trading strongly either.

The Commonwealth Bank's June Business Sales Indicator — a broad measure of economy-wide spending — was broadly flat in trend terms in June, the weakest monthly growth rate since February 2017.

And, for the first time since 2014, NAB's quarterly business survey showed conditions are now below average.

National Australia Bank's survey shows key business conditions, including employment, getting worse. (Supplied: NAB)

"That's very unusual," Mr Oster said.

"If you go back and look at that over the last number of years you'd see that it's only occurred during the GFC, it occurred a little bit around the time of 2000, which was a global recession — although Australia dodged it — and you see it big time in the last Australian recession in the late '80s and early '90s."

JP Morgan's chief economist Sally Auld agrees with Mr Oster about the current state of the economy.

"I think what it does show you is that the underlying resilience of the economy feels pretty soft," she said.

Public sector accounts for jobs growth: economists

So why is there such a big gap between what the Government and the Reserve Bank are saying about the economy, and the reality felt by businesses and shoppers, as expressed in these surveys?

The state of the jobs market goes a long way to explain what is going on.

The Government is correct in saying it is creating a record amount of jobs, but population growth and workforce participation are also strong, meaning these jobs are needed to soak up the extra people looking for work.

Moreover, it mainly is not businesses creating employment at the moment. Over the past 12 months, eight out of 10 new jobs have been in the public sector.

In other words, the Government is literally creating most of the jobs directly.

UBS says the public sector has accounted for around 80 per cent of jobs growth over the past year. (Supplied: UBS)

"So the quarterly ABS data on employment growth by industry and sector shows that in the past 12 months you've seen 310,000 jobs created in the public sector, while only 54,000 have been created in the private sector," UBS economist Carlos Cacho said.

"Now that's quite a disconnect given the public sector only represents about 15 per cent of total jobs in Australia."

NAB's Alan Oster agrees with Mr Cacho.

"People are nervous so they're not really employing people," he said.

"Everyone's worried about margins and so, in that sort of environment, the private sector is saying 'well, if I really desperately need to I'll put someone on to do a new job for me, but beyond that I'm going to be very careful not only not to employ anybody new but not to pay them any increase in wages."

There is no doubting firms' profitability, but Mr Oster said firms are not spending that extra cash on wage growth and new hires.

"I think it's more about the consumer being scared, the construction cycle going the wrong way and business being very reluctant to hire or pay more money in a really tight environment," the NAB's Alan Oster said.

That means the economy, outside of the government sector, actually is not growing at all — it has completely stalled. On some forecasts, it is set to go backwards.

Private sector demand fell slightly over the year to March, leaving the public sector to prop up the economy. (Supplied: NAB)

"I don't worry about the total economy, I do worry about the private sector," Mr Oster said.

"Eventually the public sector is going to basically slow down and what you get left with is the private sector.

"Fifty-five per cent of the economy, for example, is the private consumer, and then you add on construction and business investment and things like that.

"So it's [the government sector], if you like, a fill-in that is helping a lot, because without it the economy would really be in strife."

UBS economist Carlos Cacho said this goes some way to explaining some of the confusion around the state of the economy at present.

"Jobs growth is strong because of the public sector, and economic growth is weak because the private sector is very soft," he observed.

"So I think that helps shed some light on why currently what the RBA is called a bit of a confusing set of data."

But the Minister for Employment, Michaelia Cash has questioned the accuracy of ABS figures showing employment growth has been overwhelmingly in the public sector over the past year.

"The Government is focused on job creation and these figures show that we are putting in place the right economic framework so that the businesses out there are able to prosper, grow and create more jobs for Australians," she said.

"Recent claims by economists that most of the employment growth in Australia is in the public sector are based on their calculations from the ABS Labour Force Survey, which the ABS itself has cautioned against using as the correct measure of public service employment."

Signs that the private sector needs a bigger boost

The Government and the Reserve Bank know the economy, overall, needs help.

Dr Lowe has repeatedly emphasised that the reason for cutting interest rates in June and July has been to help lower the unemployment rate and boost wages.

"At its core, today's decision was taken to support employment growth," Dr Lowe said after the first 0.25-percentage-point cut in June.

The problem is there is little evidence the unemployment rate is on its way down.

If anything, private sector forecasts show it is heading upwards.

"All of the leading indicators of the labour force that we look at — including the NAB Business Survey, ANZ Job Ads, and ABS Job Vacancies — all are pointing towards a slowing in employment growth," Mr Cacho said.

The latest Seek Employment Report also showed a decline of 7.7 per cent in jobs advertised last month compared to June 2018.

Jobs ads fell over the year to June in every state and territory except Tasmania and the ACT. (Supplied: Seek)

In addition to Federal Government tax cuts, infrastructure spending at both the state and federal level, and further cuts to the cash rate target by the Reserve Bank, Ms Auld said businesses are "crying out" for genuine microeconomic and structural reform.

"I think one thing that could really shift business sentiment is if the Government did get on with an agenda of reform, and then businesses might feel like the broader environment was becoming more supportive to think about new investment projects and we could go from there."