April Employment Report Expectations
What Morningstar's Bob Johnson and Vishnu Lekraj will be looking for in the April data, plus their forecasts for job growth.
April Employment Report Expectations Jason Stipp: I'm Jason Stipp for Morningstar. The government releases its unemployment data for April on Friday, and this is one of those economic indicators that are one of the last to improve, but we have seen some improvement recently. So a lot of eyes are going to be on that number tomorrow. Here with me to give their take is Morningstar's Bob Johnson, he's Associate Director of Economic Analysis, and Vishnu Lekraj, and he’s an equity analyst covering the employment sector. Thanks for joining me guys. Vishnu Lekraj: Thank you. Bob Johnson: Thank you, Jason. Jason Stipp: So we have started to see, finally, some positive signs in employment in the last few reports. And I think that people are really hoping to see a continuation of that trend, for some sense of sustainability in the recovery. So I just want to start out by asking you, Bob, what are you going to be looking for in the report, as maybe a key indicator, that we are really are seeing some real improvement? Bob Johnson: Sure. One of things I'll be looking at is the manufacturing employment number. I think manufacturing is a key part of the economy, and often kind of leads the rest of the numbers in the series. So we've had a couple of months of small improvement in manufacturing. I'm hoping for as many 50,000 new jobs in the manufacturing sector. Jason Stipp: So that's quite a, I mean, last time around I think we saw something like 17, so this is quite a big jump. But with manufacturing, though, it seems that it's a smaller and smaller part of the economy so, why so much attention to that area? Bob Johnson: Sure, absolutely. Again, it's maybe a little self-serving, but the auto guys, as an example, talk about each new job that they create, creates seven to eight other jobs, and including the restaurant across the street from the plant, so to speak. So they really do stretch that number. But certainly manufacturing does have a big carry-on effect into the service industries, which tend to come back a little later on that front. So that's certainly one the key numbers that I'll be watching tomorrow. Jason Stipp: Sure. Vishnu, what are you going to be looking for tomorrow? Vishnu Lekraj: Well, as Bob said, manufacturing has improved, and ADP pointed that out in their report over the past couple of days. But I'll be watching, in particular, the service sector. That is the biggest part of the economy, as you mentioned. But, also, I'm looking at construction, because that has been the biggest drag on the number over the past quarter plus. If you get rid of construction, we're in positive territory, for a while now and also government, state and local governments in particular. Budgets again, I hate to say it, are pretty much busted. And they also have been a drag. And if you can turn that number around, it's going to be a good report. Jason Stipp: So what are you guys expecting, speaking of government, on the census front? I know that this was a big issue last time around. How much is the census going to add? What are the trends we're seeing with census hiring? Bob Johnson: Sure. Last month, there were about 48,000, out of the 162,000 jobs created, were census related. So that was a relatively big number. Now, this month, May 1st, people start going out door-to-door, for people who haven't sent in their forms, and that's the most labor intensive part of the process. So people are expecting as many as 150,000 jobs to be created from the Census Department alone. Now, they don't give you the exact number, so it's all a giant guess out there. And the key will probably be taking that number off of whatever number is reported and see what the trends are. Jason Stipp: But a point here is that we haven't seen all of the census hiring. It's going to continue to be adding to the numbers for a little while. Bob Johnson: For a little while, then it’s going to work in reversed this fall, and be a detriment to employment numbers. Jason Stipp: Ok. And, Vishnu, one of the other things that we sort of track week to week is initial claims. And I know that the initial claims now won't be wrapped up, and what we've seen recently won't be wrapped up in last month's numbers, but what have we been seeing on the initial claims front? Vishnu Lekraj: You've been seeing a flat trend over the past year. Which is not a big deal, because I think we've looked Bob and I have looked at some data and that pretty much during a recovery, you see some flat initial claims, which is natural. Because, every month, you have companies hiring, you have companies firing, even during a recession. It's just that net amount, of either hiring or firing, that's going to affect employment numbers. But during a recovery, you have net hiring, but you have some firings, you'll still have some people going onto the initial claims books. Jason Stipp: Ok. And tomorrow, we talked about what we're hoping for. What worries you tomorrow? What do you wake up tomorrow and not want to see? Bob Johnson: Sure. Yeah, a down number in real hourly wages, it's probably one of the more buried numbers in the report, but it's the wherewithal for the consumer to spend is this real hourly wage. It's that, combined with how many hours they worked and how many people that are working that really make the difference, those three combined. And real wages has been a very positive thing over the past year, but now with inflation up, affecting the real part of it. And this year we won't have a cost of living increase like we've had in each of the last three years, so I think that number is a little bit more suspect this time around. And we're going to need job growth and hours to really help us out here. And so, tomorrow, we'll have to see what the real wage number does. Jason Stipp: Vishnu, what are you going to be not hoping for? Vishnu Lekraj: Along those lines, if I see a downturn in the retail sector, or the service sector, that we didn't see last month, then that will scare me. Last month, we saw a good pop in the retail sector, discretionary retailers especially. And that kind of led to some or gave us a clue as to what was going to happen with retail or consumer spending throughout the month. But if those guys come down and we see consumer spending start to pull back. If we don't see, along Bob's lines, any increase in real wages and folks run out of savings to spend, that could be trouble. But, again, it should be a fairly stable report next month or for tomorrow. Jason Stipp: Sure. And certainly we've seen some good trends with consumer spending, so hopefully we can see that become a more sustainable thing if we do see real wages start to tick up a little bit. So the last question for you then is; what you're actually expecting for the numbers? I think consensus is around 200,000 jobs added. Where do you think it's going to come in tomorrow? Bob Johnson: Around about 200 to 250. And the reason I'm optimistic, there's a couple of things. The Monster Index that's out there, it tracks online employment, how may people are looking for jobs, not looking but offering jobs online and that index is now up 10% year over year, and has had another great monthly increase this last month. They reported the number just yesterday. And in there, they mentioned that 17 of the 20 industries saw improved hiring in 21 of 23 different professions or occupations. So, that's really good news out of there. And then on the layoff front, which has been a little bit stagnant lately, looking ahead, the Challenger Gray forecasters, who do some out-placement work and they do a survey every month, their layoff index, at 38,000 planned layoffs in the months ahead is lower than any time since 2006. So I think if we haven't seen improvement in the initial unemployment claims, we will in the months ahead. Jason Stipp: Ok, Vishnu? Vishnu Lekraj: Looking at 150 to 2, so just a little bit below Bob, a little bit below consensus. And the reason why I'm positive is because of census hiring. Additionally, I've heard a lot of good stuff from the staffing firms that have reported over the past month. A key theme that they've been throwing out there is that a lot of their customers cut to the bone, cut way too much during the recession. And now have to hire because business is picking up and they don't have the capacity for it. Jason Stipp: Why do you think that you're coming in just a little bit below consensus? Vishnu Lekraj: Well, the census thing is kind of hard to read, so I'm trying to make an adjustment for that ex that, I still think it's going to be positive, at least hopefully close to six digits. Jason Stipp: All right, great. Well, thanks again for your insights. We'll be checking in with you tomorrow and let’s talk about the actual report and the actual numbers. Vishnu Lekraj: Thank you. Bob Johnson: Great. Jason Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.