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By Jason Stipp | 10-07-2011 09:38 AM

Job Market Upshifts, But Still in Low Gear

A consensus-beating September employment report suggests we've moved past a recent rough patch, but the job market is still in a soft spot, says Morningstar's Vishnu Lekraj.

Jason Stipp: I'm Jason Stipp for Morningstar. The government's employment report for September came out on Friday. It beat a lot of market-watchers expectations with a 103,000 jobs added to the economy over the last month.

Here was with me to dig into the details and give his take on the report is Morningstar equity analyst Vishnu Lekraj. He is an equity analyst covering the employment sector.

Thanks for joining me, Vishnu.

Vishnu Lekraj: Thanks for having me.

Stipp: So, 103,000 jobs added; that is much better than consensus. That included 137,000 private sector jobs, and then we lost some government jobs, which took us back down to that 103,000. It was a report that generally is being seen as positive compared to the expectations. What's your take on it, though?

Lekraj: To me it's a positive report overall. When you look at the top-line number--obviously, it beat expectations. Now you've got to factor out the Verizon strike; you've got to take some of that out. But pretty much it is in line consensus or beat consensus for the most part. When you dig down into the numbers a little bit, everything was either pretty positive or flat. So it wasn't anything really negative that stood out.

Stipp: So I want to dig into the sectors in a moment. So the Verizon strike--that was something that subtracted workers from the August report. They got added back into the September report. So after you account for that, it was a little bit closer, I think, to the consensus estimates. But they did revise up the last couple of months, which I think is another good sign.

Would you say that given this report, it seems like some of the doldrums we saw over the last few months were really just more of a soft patch that we've worked through now? Or do you see a continuation of that?

Lekraj: No, definitely, it was a soft patch. When you map out those numbers over the past year and a half, you can definitely see a slowdown over the past couple of quarters that happened within the employment market. Now, you factor in the headwinds we faced and obviously that's understandable, but we've definitely moved out of that phase I believe.

Stipp: So, maybe we went from very soft to now just back to, "it's still soft."

Lekraj: Kind of soft, a little bit.

Stipp: Okay. So, I want to talk about some of the underlying factors. So you said things generally looked pretty good across the board as far as the gains that we saw. What were some of the big winner and what are some of the areas that are still suffering from weakness?

Lekraj: Health care was pretty big; it added about 40-some thousand jobs. The temporary labor market picked up again; now that's three months in a row we've seen temporary labor be about 20,000-plus, which means businesses are starting to dip a toe back into the water. When you look at that sector, in particular, three months prior to this period, there was negative or flat job growth for that sector. So you can definitely see businesses start to pick that back up.

One soft patch or one soft sector was the retail sector. That was pretty flat. We would like to see that number start to pick up here, because the holidays are coming up, and usually in September is when you start to see that pick up. It looks like they're waiting and they're cautions right now, retailers are.

Stipp: I know construction has been an area where we've seen generalized weakness throughout the downturn, even through the recovery. What did construction look like?

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