Thu, 4 May 2017
Bob Johnson says the government employment numbers on Friday have room to move higher after a weak March.
Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. April is one of the most important jobs reports of the year, and I'm here with Bob Johnson, our director of economic analysis to explain why, and also what his outlook for the month is. Bob, thanks for joining me.
Bob Johnson: Great to be here today.
Glaser: Let's start with why April is so closely watched. You say it's one of the biggest job gains, if not the biggest job gain month that we'll see all year.
Johnson: That's right. Before seasonal adjustments, on average, we add about a million jobs a year in April. That's a big number, relative to, say, a typical year we might add 2.2, 2.3 million jobs. It's a huge percentage of jobs that are created in April. It's the confluence of school finishing up, some seasonal work beginning. It is just a very big number. October comes very close to April in terms of importance, but April is the big kahuna. Months like November are pretty low, and often that's a month that does well, but it doesn't really make any difference. What makes a difference is April and October.
Glaser: Let's look at what we could see, then, when the official report comes out on Friday. ADP said 177,000 private sector jobs were added. It's a big deceleration from where they were previously. What's driving that slowdown?
Johnson: Yes. They've been in the mid-250s for the first three months of the year, and now we came in at 177. Clearly, a deceleration in their numbers and what they've been seeing, and certainly a big part of their numbers being high is they've been very bullish on construction and very bullish on the mining sector. Both sectors which, indeed have done better, but they haven't necessarily picked up all of the weakness in retail. They've been a little bit high on their numbers.
The government numbers, on the other hand, the numbers that we'll see on Friday have been more in the low 200s. Then we had a very bad March number at just 89,000 jobs. Clearly, they haven't been exactly matching one-for-one lately. Certainly, the government data looks like it has a little bit room to move higher than the poor March number, in any case.
Glaser: Looking across where jobs were added, according to ADP, where are the pockets of strength?
Johnson: Yeah, there was really only two standout categories in the whole report that really seemed to note much relevance. The first is, professional business services did exceptionally well, again, adding over 70,000 in a single month. That's really wonderful to see, because those are high-paying jobs, jobs that people get that make them feel good about themselves, and jobs that pay very well, which will help bring up the average wage number, too. We love to see that category do well, and it certainly had a big number, at least according to ADP this time around.
On the other end of the scale, trade, utilities, and retail didn't do nearly as well. That only added 5,000 jobs. At least it's not a negative number, but still, retail is under a lot of pressure. Like I said, they've been a little slow on picking it up and maybe the number will end up being even worse when we look at the numbers on Friday. Certainly, retail on the bad side of the house and professional business service is on the good side of the house.
Glaser: ADP splits up their numbers by small, medium, and large businesses. Who was adding the jobs?
Johnson: This time it's kind of in the middle. It was the middle-size businesses that did well and added the most jobs for the month. That's probably a decent category to see do the best. Small businesses did a little less than that, but still a pretty good number. Big businesses, again, didn't do quite as well, which we hate to see when they don't do well because they're often the best bellwether. The small-business men tend to lag some of the data, and the big businesses tend to lead a little bit. There's a little worry there, but the midsize businesses were also a great hire, so we're glad to see that.
Glaser: Turning to Friday, what are your expectations, and what are consensus expectations?
Johnson: I think overall I'm going to go with about 180,000 jobs added, which is pretty darn close to the average over the last 12 months of 182,000 jobs. We've had a couple months that ran above that in January and February, and a month in March that was a disaster and was way below it. I think we'll close and be more at an average number right now at about 180,000 jobs added.
The consensus is about 200,000. Everybody's a little bit higher. If I had to pick a single reason, I'd probably say certainly some of the March data that we've been getting to see over the last couple of weeks has not been robust, and that tends to drive the hiring the following month. Certainly, the weak auto number that we saw was not helpful and the weak consumption number was not helpful. All of those will probably weigh on the data just a little bit. I'm thinking we're going to be a little bit lower than the 200 consensus, probably about 180.
Glaser: Bob, thanks for the preview today.
Johnson: Thank you.
Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.