The Employment Market Recovery
Friday's employment numbers confirm we have been through the trough, say Morningstar's Bob Johnson and Vishnu Lekraj.
The Employment Market Recovery Jason Stipp: I'm Jason Stipp from Morningstar. April job gains have beat expectations, coming in at 290,000 jobs added to payrolls. Here with me to talk about the government data is Morningstar's Bob Johnson. He's associate director of economic analysis. And Vishnu Lekraj, he's covering the employment sector for Morningstar. Thanks for joining me again, guys. Vishnu Lekraj: Thanks for having us. Bob Johnson: Thanks. Jason Stipp: So the number, the gains, the job gains were better than you guys expected. Better than the market expected. What was behind the nice report that we got? Bob Johnson: Sure. I think it was a broad-based recovery in the jobs market. And obviously manufacturing was one of the key things in there. Obviously, there were a few census jobs in there, but actually less than people thought. The number was cleaner, the private sector growth was more than many people had anticipated. Jason Stipp: Vishnu, we actually saw some revisions from a couple of months ago. So it seems like we're building a nice trend here. Vishnu Lekraj: Right. We've seen job growth here for the past, what, five out of the six months or four out of the last five months which is a good sign. Now I can fully say to everyone that we are definitely in the employment market recovery. The pace is still maybe a little slow. You may see a couple hundred thousand here or there. But we definitely have went through the trough. We are seeing growth, which is very good news. Jason Stipp: Now one of the things, you know, the unemployment rate ticked up. Now I've seen a couple of reports already that talk about this in a negative light, but this is not necessarily unexpected. Bob Johnson: It's absolutely typical of what happened coming out of a recession. And in fact, it ticking up is a positive sign. It indicates higher consumer confidence to go out and actually look for a job. Since we've kind of started coming out of this we've added 806,000 people to the workforce, and that's a darn good number. And of that at least close to 200,000 of those were people that were re- entrants to the job market, people that had given up and have now come back into the market again. So I view that as a positive. Actually, the number employed is up, so that's the key number to really watch. Jason Stipp: You think 9.9% is a number to worry about or is that not unexpected. Vishnu Lekraj: It's on track with what's been happening over the past year. With that said, we don't like to see unemployment rate close to 10%. But like Bob said during a recovery it tends to pop. And when you break it down in a category or an age basis, the 20 to 24 year old category was the biggest gainer this month which is not necessarily bad news. It means that folks that were home, that could stay home very easily, are now moving back in and feeling more confident about the employment market as a whole. Jason Stipp: Sure. Bob, you said yesterday that you were hoping to see some gains in manufacturing because that has a nice follow-on for more jobs elsewhere in the market. What did you see on manufacturing? Bob Johnson: Absolutely. And that's what exactly happened today or what we saw. Manufacturing added 44,000 jobs. So that's a really nice improvement over the prior month. And again manufacturing is important because it tends to drive the services sector two or three months down the road. So we had some of the best gains we've seen this recovery in the manufacturing, especially in the durable goods category. Jason Stipp: Vishnu, you were also speaking of services. You were going to keep an eye on services, and you were also wondering what was going to happen with construction which has been a drag for a while. What did you see on that front? Vishnu Lekraj: Good news on both of those fronts. Construction was up 14,000 this month. What drove that was a lot of nonresidential building. A lot of heavy machinery work. So maybe some of the stimulus money is starting to finally kick in, so all in all that was really good, because again, like I said if you ex that factor out over the last few months we've had huge job growth or very significant job growth. So it was positive. Looking at the service sector as a whole, it was up 166,000, which is a good sign. Jason Stipp: Sure. Now the report overall seemed very positive, but there were some worries that you guys identified yesterday and some things maybe didn't come in quite as well as you would have hoped for. You were one of the things that were worrying you were the real hourly wage. How did that come in and did that meet your expectations? Bob Johnson: There are two versions of the number, which makes it all very confusing. And one of them was up a penny, which is OK, but still kind of light, but we got better job growth. If we look at another version of the number we're actually up a nickel, which is a pretty good number. So I was very pleased about that one. Jason Stipp: Okay. Vishnu, you were going to look at retail specifically because you were a little concerned on some trends you'd seen there. What did you see? Vishnu Lekraj: Overall retail was pretty good. Every category added jobs, except for one, which is the general merchandise retailers, the Wall-Marts, the Targets, the Dollar Stores. Those tend to cater towards the lower end consumer. If we don't see a pick up in the lower end consumer, it may hurt the recovery. What happened yesterday with the market itself dropping could affect some of the higher end consumers and they could stop spending. Now I'm not saying that's going to happen, but that could be something on the horizon that you may want to keep track of. Jason Stipp: OK. Turning to looking ahead, it seems like we're on a good pathway here. What's sort of your forecast for what we might expect to see over the next few months and going forward as the job recovery continues? Bob Johnson: Sure. I would expect to see at least 200,000 to 300,000 job growths each and every month going here through the rest of the year, with some brief pause when some of the census numbers begin to roll off. Kind of the good news is there. It seems like people are coming on slowly and hopefully they'll come off just as slowly. But that would be the one caveat; otherwise I think we're going to do very well. All the numbers on employment are given in terms of asking the businesses what they think, and that number tends to lag behind if we ask people if they actually have a job. If we ask them if they actually have a job, that number, the employment number went up over 500,000 people last month. So I think that bodes well for the other number going in the months ahead. Jason Stipp: Sure. Vishnu, looking in your crystal ball, what are you hoping to see? Vishnu Lekraj: I think the market should expect the unemployment rate here to still continue to spike, still be at elevated levels. Which again, like we said, is not really a bad thing. Bob Johnson: Vishnu, you don't really mean spike? I mean, you kind of mean stay up here near this elevated level. You're not thinking it's going back to 10.5% or something? Vishnu Lekraj: No, no, no, no. Thanks for clarifying. Yeah. So I think it's going to be pretty much flat, maybe go up a couple tenths of a basis point here over the next few months. You will see some job growth here; probably in the 150,000 to 300,000 range is what I'm looking at. It's going to fluctuate. You're not going to see a huge V or a straight line by any means. So the market shouldn't be surprised if we see some fluctuations and some up and down. Bob Johnson: One thing I would say where I think you could see something a little bit stronger, the manufacturing has tended to lead this whole thing through here. And manufacturing was very strong. You look at any kind of numbers and the manufacturings looked a little bit stronger than the service sector. Vishnu Lekraj: Yes, it has. Bob Johnson: And I think it's going to start to spill over. I think you're going to have the service sector do a little better now that manufacturing has picked up and come to life. Vishnu Lekraj: You may be right. I've seen some anecdotal evidence, not just from the staffing guys, but just trolling around in job boards, asking people who live in different regions of the country. Everyone's more optimistic. Jason Stipp: Okay. Well, guys, thanks for your insights. Some very important trends to watch and I appreciate you being here with me today. Vishnu Lekraj: Thank you. Bob Johnson: Thank you. Jason Stipp: For Morningstar, I'm Jason Stipp, thanks for watching.