The Forecast for February US Jobs Report
Several factors, including weather, might crimp improvement in Friday's unemployment report, but the longer-term forecast is sunnier.
The Forecast for February US Jobs Report Jason Stipp: I'm Jason Stipp for Morningstar. The government's unemployment report will be coming out tomorrow, closely watched by a lot of market watchers. Here with me to talk to me about some of the issues that could affect that report, but also what they're seeing longer term in employment, is Morningstar's Bob Johnson--he's associate director of economic analysis--and Vishnu Lekraj; he's an equity analyst covering the employment sector. Nice to see you again, guys. Bob Johnson: Good to be here. Vishnu Lekraj: Thank you. Jason Stipp: First question for you. There's a lot of talk that some bad weather that we recently had could have a negative effect on this job report, and could maybe make the number more disappointing than people thought. What's behind that? How might the weather actually affect this, or will it? Bob Johnson: Sure. There's some controversy over if it will or will not, but the measurement period for the employment reports is the day that's Feb. 13. That week is the week that they do all the surveys and calculations. That was the heart of the storm. So there's some fear that that's going to cause a discrepancy in the number, because it is a large, important sector of the economy, the whole Northeastern part of the country was badly hit in the very week that they actually do the surveys. Jason Stipp: So basically, people in certain industries might not be able to work that week, and because that's the week that they're looking at the numbers, could this have a negative effect? So then we'll see people that might have been working the rest of the month, but just not during this time period? Vishnu Lekraj: You may see a little bit of that, but from my understanding of how they calculate the numbers, when I called the BLS themselves, I verified what I was thinking. In essence, I don't think the effect is going to be as harsh as what some folks in the press are making it out to be or even the administration is making it out to be. There may be some politics out there with the administration trying to get in front of this thing, so they can keep the debate on health care. But in my opinion, it affected one part of the U.S., the Northeast. We have a whole three-fourths of the country that wasn't affected by the weather. And how the BLS calculates it, I think the weather will be material, but not as great as everyone thinks it's going to be. Jason Stipp: So maybe a little bit of sandbagging just in case it's lower, then they'll say it was the weather. Vishnu Lekraj: I think so. Jason Stipp: So how will we know when we look at number tomorrow if the weather had an effect? What hints might we see in the report. Bob Johnson: Sure. One of the things that's obviously most affected by this would be the construction industries. If you've got really dire weather, you can't build a home, you can't build a building, you can't build a road. That will be an area that tends to fall off the worst when you have a weather-related issue. So that would be one category. In temporary help, we only pay people for the hours they're actually on the job. They haven't got a long-term situation. Those would be two categories that could be a little worse than they otherwise would be. If those are the key problems and everything else is okay. I think that's what I would be looking at. Jason Stipp: Okay. We certainly want to have people take a step back from this and not focus too, too much on tomorrow's number, and maybe think of some of the longer-term trends. So I'm hoping that you guys have a little bit of positive news for me here on what you're seeing that might affect employment a few months out and maybe for the rest of the year. What do you have on that front? Vishnu Lekraj: I have several points that are positive. Regardless of this report, you can't take one number--like I've said in the past--and extrapolate that into the future. We have some reports from the ADP that are very positive. ADP is almost into positive territory for the first time in a while. We have Intuit, which puts out a good report which is fairly new, so the measurability of its past results isn't there yet, but that's positive in terms of small businesses and their creation of jobs. We have the four-week moving average of initial claims. That's been pretty much flat, and I expect it to come down into normalized territory pretty soon. So all in all, again, like I said, it's been very good. And also on the ground, I had a staffer report week, Heidrick & Struggles, HSII is the ticker. They were positive and their results are very good. And I actually raised the fair value because of that. Jason Stipp: That group focuses on a slightly different area of the market, right? Vishnu Lekraj: They focus on executive recruitment and placement, which is a tough market during a recession, and they've been hit extraordinarily hard over the past year. But what really gave me encouragement was that they reported really good results for the fourth quarter, and their prospects and their outlook for the future, it's up. Jason Stipp: Bob, what good news do you have? Bob Johnson: I think certainly the purchasing manager surveys are out there. There's regional ones, there's national ones. Anyway you look at it, those numbers have been strong and much better over the last couple of months. We got the report on Monday on the national manufacturing side, that we're definitely adding jobs on the manufacturing side. That's obviously a huge positive because I think, over time that will pull in more of the services jobs. On Wednesday we had the purchasing managers survey that looks at just the service businesses, and they're not really hiring or firing, they're kind of neutral right now. But that's considerably improved what it was even one month ago. So that's certainly a big indicator, a national indicator. As you all know, the ISM purchasing manager data is my absolute favorite data source. So that's certainly one. Then on the new world economy, so to speak, the Monster Index of online hiring was up year-over-year for the first time since 2007 in the report that came out today. So I think that's also a positive long-term indicator. Just in terms of employment in general, why that should be getting better, consumer spending looked wonderful on Monday when it came out, up five-tenths of a percent. That was a very nice number, and an unexpected surprise for the marketplace. That's good news. Jason Stipp: So some good things to keep in mind if that number is a little bit disappointing tomorrow. If you had to forecast what you think you may see tomorrow, given all the possibilities for a little bit of noise in there, what do you think we're going to come out with? Vishnu Lekraj: Number one, we have a bunch of variables we haven't dealt with in the past in terms of, you could say, maybe sandbagging or whatnot. But I expect the unemployment rate to tick upward close to 10 percent, above that, within that range. And non-farm jobs, ex-weather, I would expect that to be close to zero, or maybe a little positive. With the weather effect maybe slightly negative for the month. It could be as far down as a 100,000 loss, depending on what's going on. Jason Stipp: Bob, what are you seeing? Bob Johnson: Yeah, just because that weather is a big X-factor, minus 100 wouldn't shock me, but neither would a plus 50. Jason Stipp: Okay. We'll check back in with your tomorrow and get your take on what the actual numbers were. Thanks for joining me, guys. Vishnu Lekraj: Thank you. Bob Johnson: Great to be here. Jason Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.