What June's Employment Statistics Mean
Morningstar's Bob Johnson and Vishnu Lekraj give their takes on June's employment report and offer predications for the coming months.
What June's Employment Statistics Mean Jeremy Glaser: Employment at a stalemate. I'm Jeremy Glaser with Morningstar.com. Today's unemployment report was roughly in line with consensus estimates. Not a lot of surprises, but I'm here today with Associate Director of Economic Analysis, Bob Johnson and employment analyst, Vishnu Lekraj to take a look at their take on the report. Gentlemen, thanks for joining me. Bob Johnson: Thank you. Vishnu Lekraj: Good to be here. Jeremy Glaser: So, we saw that there were 125,000 jobs lost. A lot of that was the 225,000 census workers that were laid off. What was your general take on the report? Bob Johnson: Well, I'd looked at it as the private sector is the key way to look at it. Let's put the census people aside and look at what the regular economy private sector is doing, and we grew about 83,000 jobs. It's a little less than I had hoped. I hoped we might get over 100,000 but it was a better growth than the previous month and we added about 33,000. So it accelerated a little bit. It's kind of in the realm of statistical noise. It's a pretty small increase. Vishnu Lekraj: Numbers were in line with what I had or what I thought would happen. Bob was right. Private sector grew a little bit, a lot more than last month, but we're at the point like you said, a stalemate, where hiring and firings are pretty much equaling each other out. We're at zero. This report itself in particular wasn't a lot of positive in. It wasn't a huge amount of negatives, but there were more negatives than positives, I would say. Jeremy Glaser: One of the things that was somewhat surprising was that the unemployment rate, which comes from a different survey than the payroll numbers fell to 9.5%, which was people actually expected to rise a little bit. What do you think was behind that fall? Bob Johnson: Well, I think the unemployment rate as you say is calculated by talking to individual households and doing a survey, and apparently a lot of people weren't looking for jobs, and people were a little bit discouraged about the job outlook perhaps, and didn't even bother to look for a job. And then they are not counted as unemployed, unless you're actually going out and looked for a job. So, while the rate went down, which is nice to see, unfortunately it was because a lot of people left the workforce. They really weren't looking for a job. Vishnu Lekraj: Along those lines, when you look at the U3 number, the headline number, that went down, but when you take in consideration the U6 number, I know Bob doesn't really care for this number a lot. But it is out there, it is measured and the gap between the U3 and the U6 has increased to 7%, that hasn't come down for the past year. We'd like to see that range narrow into about 3.5%, which is normally what it should be. Bob Johnson: And the U6, just as a reminder of what is that, Vishnu? Vishnu Lekraj: That is workers looking for part-time or looking for full-time work, but they are working more part-time. They are encompassed in that unemployment rate also. Jeremy Glaser: Vishnu, were there any sectors that looked particularly strong or particularly weak this month? Vishnu Lekraj: It was a mixed bag. When you look at the construction sector, they continued to lose jobs, about 20-some thousand. Positively, that has slowed over the past few months. When you take a look at leisure that was a huge upside surprise in my opinion. When I spoke to our analyst in the floor, Warren Miller, who covers that sector, he explained to me that a lot of these companies that do participate within leisure and hospitality have bookings numbers that can go far out in months and years, and it looks like their bookings are pretty strong. So they've hired a lot. And temporary help again was a big, big gainer this month. Again, that's going to benefit our temporary service list, but things have started to slow a little bit overall with job gains. Bob Johnson: Yes, manufacturing had been a big gainer and it was a little bit of a smaller gainer this month. I think some of the momentum in the auto industry has slowed just a little bit, and that's kind of impacted the numbers. The finance has been one that's been incredibly – usually we come out of a recession, it starts to get better, it's been bad most of the recent months and has continued the same trend. We actually lost financed jobs again. And the information services, kind of publishing type, communications type jobs were another area that was a little bit disappointing this month. So, as you said, kind of a mixed bag. Jeremy Glaser: Bob, I know one statistic that you track pretty closely are the number of hours that workers are actually on the job and also how much they're getting paid. Where does that come into this report? Bob Johnson: Yes, what I've always liked to do is say, well, you know, it's not just the number of people at work, it's how many hours they work per week, and what they get paid for those hours. And we had three months where kind of we were hitting on all cylinders, where all three of them were kind of going up. Unfortunately, this month, we hit the trifecta on the negative way. The overall employment was down a little bit because of the census workers. The hours worked was marginally down and the average hourly wage was down marginally. So after months of kind of improvement in all of the sectors we were definitely disappointed by that this month. Jeremy Glaser: How do we break this stalemate? When does employment start to move? Either one way or another what are the factors that you're looking for and where do you expect these numbers to go in the coming months? Vishnu Lekraj: When I'm looking at these numbers and I'm trying to model this out for my employment services list for the companies I cover on the ground. What I have in there right now is pretty much a slow growth trend for 2010. Seeing that start to accelerate over in 2011 and start to become more robustly after that. That's what I believe is going to happen. Slow growth over here over the medium to near-term or near-term to medium-term, but more normal growth over the longer term. I don't believe in any new normal type state thing or theory, but I do believe we're going to see some anemic growth over the near-term. So everyone should be braced for that. Bob Johnson: Yes. I think what's going to break the stalemate, I mean I've obviously been big on the manufacturing sector having done relatively well, and that generally, eventually spills over into the services sector. And we haven't really seen, other than this month's leisure numbers, really started to see that happen yet. And so, I think that's going to be the next driver, when the production workers that have been continuously added here begin to spend more of their money on leisure activities and other activities in the service sector. And I think that's going to be one of the key things to watch is when we make that transition from it all being a manufacturing story, which was probably slowing just a little bit here to over into the services side of the house, and that's what I'm really looking forward in the months ahead. I really think there is room for hours and wages to kind of grow up in the months ahead as well. Jeremy Glaser: Bob, Vishnu, thanks for your thoughts this morning. Vishnu Lekraj: Thanks for having me. Bob Johnson: Great to be here. Jeremy Glaser: For MorningStar.com, I am Jeremy Glaser.