Wed, 30 Nov 2011
Recent positive data in employment is more than an anomaly, say Morningstar's Bob Johnson and Vishnu Lekraj.
Jason Stipp: I'm Jason Stipp for Morningstar. The ADP employment report on Wednesday showed what appears to be an acceleration in the job market.
What's behind those numbers, and what should we expect for Friday's government employment report?
Here with me to offer their insights is Morningstar's analyst Vishnu Lekraj and Bob Johnson, director of economic analysis.
Thanks for joining me, guys.
Vishnu Lekraj: Thanks.
Bob Johnson: Great to be here.
Stipp: So, Vishnu, the ADP report showed 206,000 private sector jobs were added in the last month. This was above analysts' expectations. They also revised higher the prior month. So it appears like we're getting some traction and acceleration in jobs. Is that really the case or is this some kind of an anomaly?
Lekraj: No, I think there has been a pattern. If you look at other reports in conjunction with this one, and if you combine this with what the employment services' folks reported last quarter--all this makes sense, and the positive momentum is not necessarily an anomaly. It is a trend.
Stipp: So, Bob, I know, sometimes we'll see a month that looks really bad and then we'll see a month after it that looks really good. And you kind of have to smooth those two figures out. Are you seeing, when you're looking at longer-term trends, that we're seeing fundamental strength here or are we just bobbing up and down and we're not really making much progress overall?
Johnson: Well, I think we're making a little progress. I mean I think we're growing employment between 1.6% and 1.7% every month compared to the same month prior year. I think that's the right way to look at the data. I think that this report will probably just bring us up along that same trend line yet again.
Stipp: Okay. Vishnu, this is the holiday season. We heard a lot about the Black Friday shopping that happened. So, retail is obviously going to be in focus here. How important is retail to these numbers that we're seeing right now, and what are some of the trends there?
Lekraj: Well, they are always hugely important during this time of year. Retailers tend to put a juice into the economy in terms of huge discounts, in addition to that hiring some temporary workers on top of that. But this year, it's little bit of a cautious tone, I think, we should take from here on out.
Even though the numbers from the past Black Friday weekend were great on a year-over-year basis, retailers did a lot of discounting, heavy discounting, and they're really trying to get a lot of money out of people's wallets earlier in the season. So, you may see some sales pulled forward. In addition to that, you may see them trying to preserve some of their bottom line with less hiring and less costs.
Johnson: But one thing you saw, you mentioned to me earlier on the employment side, was that [stores] are open longer hours and are competing on hours this time around.
Lekraj: Yes, so they're competing on being open longer, which means they may have some more employees on hand, but again you have to watch how they look at their ticket price and how they look at their gross margin in conjunction with the op margins and EPS. They are trying to work that by trying to cut out some costs. We'll see how that works out.
Johnson: It's a great Christmas, I think, to be a customer and not so great a Christmas to be a retailer.
Stipp: Speaking of the customer and the consumer, Bob, what other factors are you looking at that might point to some positive fundamental strength that we might expect to see in the jobs market? What are the data do you on your radar?
Johnson: Well, just if you go to the raw employment data, other metrics that we have were the Challenger Gray layoff report has trended better for the past three or four months, and we've got another good report this morning on the Challenger Gray, so that's good news. That's a measure of layoffs.
The initial unemployment claims have been trending down. We're now at the best levels of the recovery on a four-week moving average basis, so, certainly that means the firing end has certainly slowed down dramatically over the last six months. So, that's another positive thing.
We talked about the job openings report; the so-called JOLT report, from the Labor Department two weeks ago. It showed that the number of job openings is still far from its past high but had recovered a lot of ground and was now at its highest level in terms of openings since 2008. So, that was a very good news.
Then, besides those things that are directly employment related, which all look a little better, you had some of the more indirect things. Spending has looked a lot better. Yes, consumers are shopping for bargains, but even in cars and other things, consumers seem willing to spend. I am guessing the consumer thinks the job market is a little bit better than maybe some of the numbers have shown.
Lekraj: Just to kind of add to that a little bit, I believe what's going on with the consumer and with the U.S. economy is that a lot of people are ... I hate to say this phrase, but maybe a new normal is in effect, where everyone is feeling a little bit more comfortable with what's going on--even though things aren't as robust, the unemployment rate is still at 9%, you still have job growth that's not to a level where you want to be. But I think everyone is feeling a little more comfortable, a little more safe, they've saved up some money, deleveraged some of their balance sheets, and I believe they are more comfortable with going out and trying to spend some money this time around.
Stipp: So, maybe the key is that we've had a stabilization. Even though we haven't seen a huge upside here, we're not seeing a huge downside either, so people feel like it could be better, but at least it's not getting too much worse right now?
Stipp: Okay. So, Bob, looking at Friday's number, I think the consensus is for about 123,000 top line, total number jobs added in the last month. What do you think about that number? Do you think that's a little bit low given the ADP report that we just saw?
Johnson: Well, you always have to be careful, because the seasonal adjustment factors and the birth-death things, and a couple of other numbers that are in there really make the numbers hard to interpret. But I think a good range to think about, is 100,000 to 150,000 jobs. I am clearly more at the 150,000 level than the 120,000, because I think we've seen a lot of good stuff happen, and I don't think we've got a lot of seasonals to fight here. So, I'm a little bit more on the bullish side, but nothing in the 100,000 to 150,000 should cause anybody to change anything radically. That's the range where I'm at.
Stipp: Vishnu, are you about in that range?
Lekraj: Yeah, between 130,000-160,000. With all the positive data, with the weekly claims trending down, with this ADP report being almost double what the market expected, or close to that, I think it's going to be a little bit more robust than what we thought.
Stipp: All right, guys. We'll look forward to checking in on those Friday numbers when they come in and getting your insights then, but thanks for joining me today.
Lekraj: Thank you.
Johnson: Thank you.
Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching