Fri, 10 Jan 2014
The employment market is not as weak as the December report suggests, but also not as strong as many would hope, says Morningstar's Bob Johnson.
Jason Stipp: I'm Jason Stipp for Morningstar. We were disappointed Friday morning by a very below-expectations December payrolls report, which was not only well below the [monthly] average for 2013, but also the lowest in three years, with only 74,000 jobs added.
Here to give his take on the report is Morningstar's Bob Johnson, our director of economic analysis.
Thanks for being here, Bob.
Bob Johnson: Great to be here today.
Stipp: You say this report has a few suspicious elements; we're going to talk about that in a second. But even suspicious elements aside, it's a pretty disappointing report. The suspicious elements can't account for all of it.
Johnson: Exactly. It was a weak report. 74,000 is a low number. Almost every category was a disappointment. The only thing that could be said is that the November numbers were revised upward by a pretty substantial amount, so that offsets some of the sting, but by category, by wages, by hours, it was a crummy report.
Stipp: Some folks had been expecting that the economy is gaining velocity going into 2014. A report like this would seem to suggest that there are still quite a few bumps in the road.
Johnson: It throws an awful lot of cold water on that notion. [Some believe that] we are accelerating, and we have all this growth. Well, we grew 183,000 jobs on average in 2012, and 1,000 less--182,000--in 2013. Where is the growth? Where is this acceleration that everybody is talking about?
Even the manufacturing sector, which everybody is so fired up about and reads these ISM numbers and thinks that we're doing so great. We added 77,000 manufacturing jobs for the whole year. That's not a big number. That's not a move-the-needle type of number. And by the way, the manufacturing number in 2013 was half what the number was in 2012. So clearly, these people who keep reading the ISM data and keep hanging their hat on how wonderful manufacturing is doing are looking in all the wrong places.
Stipp: That said, this report, weak as it was, looked at year-over-year on an averaged basis, like you do, shows more of the same basically stagnant growth that we've seen for a while.
Johnson: That's really the takeaway from this report. There are a lot of things wrong with this report, a lot of things that make it look very, very suspect, but it was a weak report.
Stipp: Let's talk about some the suspicious elements. A lot of it showed up in the underlying sectors, where we either saw strength or weakness. Retail was one of the strongest sectors, with 55,000 jobs added, but yet retail was not a particularly strong performer from a sales perspective in December.
Johnson: It just doesn't compute. We look at the retail sales data, and it was the worst holiday season we've had since 2009, and yet it was one of the stronger sectors in the job economy. What's really weird is that the apparel sector was one of the strongest hiring sectors within retail, and apparel has been one of the weakest. We just saw a lot of numbers [Thursday] about weak retail data, and I'm afraid that's going to come back and bite us next month, because we're already hearing about Macy's closing stores and doing some layoffs. Dollar General reported some weakness. So whatever [hiring] strength we saw in December will probably go away in January--at least, in terms of the retail sector. Some of the other sectors may go the other way.
Stipp: Another suspicious sector was construction. The ADP report, as you recall, showed about 50,000 construction jobs added in December, and here in the government report we have 16,000 total construction jobs lost in December. What's going on with construction?
Johnson: I think a lot of it may be weather-related items. ADP tends to count people as long as they're on the payroll whether or not they showed up on a given day, and the government data is calculated slightly differently than that.
Stipp: But that's still a big gulf.
Johnson: That's a huge gulf, and I can't believe the ADP number, as strong as it was, that they'd actually let the number out. It's some incredible percentage of construction jobs added in one month, and a month when it was snowy and cold and nobody was building anything. Something was either wrong with their seasonal factors, or something very odd happened--somebody switched categories or something--because that number just didn't make any sense.
On the other hand, I don't think we lost 16,000 jobs, either. Some of the Architectural Billing Index numbers and some of the other data that I look at suggests that [construction] is at least holding its own.
Stipp: Another suspicious sector in the government report: It would suggest that a small army of bookkeepers got pink slips in December.
Johnson: I don't know what happened there. This is a category that's pretty small. If it changes 5,000 or 10,000 people in a month, that's a big deal. And we lost 30,000 bookkeeping jobs in one month [according to the December employment report]. That's a really odd number. It's a steady-state thing; you need a bookkeeper, whether or not business is a little better or a little worse. I'm wondering if some bookkeepers got moved to a temp category and that's why the temp category looked a little bit better. But 30,000 bookkeepers--that just raises a big red flag that there's something deadly wrong with the employment report this month.
Stipp: A bit of a strange month to make shifts in your bookkeeping employment.
Stipp: Government also had some suspicious elements with the education component?
Johnson: In the local government component, that is the local-school teachers, there was a 13,000 decline in number of teachers. How does that happen? Teachers are generally hired at the beginning of a school year and generally you don't cut classes in the middle of the year, at least not on the local side. How we could have lost 13,000 local government jobs that way is hard to fathom, and especially in a world where property tax collection and sales tax collections are getting better. So that number also smelled that something wasn't quite right.
Stipp: Another sector that maybe wasn't suspicious, but was certainly disappointing was health care.
Johnson: Both health care and education have been key sectors for this recovery, accounting for 20% combined since 2009 of all jobs created, and those markets are falling apart right now and culminated in no growth, zero growth, exactly, in education and in health care for the month of December.
Clearly, the trends there are not good. Maybe with the Affordable Care Act, that health-care hiring number gets a little better next year, but those are certainly weak numbers. They've been key pillars to growth in the economy, and really, I don't know what's going to replace them.
Stipp: That education component is a private-sector education component in that case?
Johnson: Yes, that's different than the local government teacher education, which goes in a different bucket. This is the Strayers and the private, for-profit universities. It's private schools--those type of things. It's not your everyday school.
Stipp: A couple of other pieces of data didn't look great in the report: the work week and the [average hourly earnings].
Johnson: On a month-to-month basis, hours worked went down, and wages actually went up the smallest they've gone up in a long, long time, 0.10%. Again, on a year-over-year basis, those numbers look a little less worrisome. I like to put the employment, the hours worked, and the wages altogether in one big package. We're still trending at about 4% growth there year-over-year. So, no disaster in those numbers, and that's why we like to look at the three-month moving average, year-over-year. That paints a picture of a steady-state, slow-growth economy, and I think we're still there.
Stipp: Just looking ahead to 2014, given that you have this disappointing data point at the end of that series now, will you be looking for anything different or do you have any worries about trends in employment as we move into the new year?
Johnson: I do worry very much about retail. I can't understand why that sector has been as strong as it has in terms of employment in 2013. Certainly with the crummy holiday season, when the companies make most of their money, I am very worried about what happens next year. Then you add in the Target mess, and what they're going to have to do relative to their business, that all makes for tough things for retail [hiring] next year.
On the other hand, maybe government won't be as big of a drag next year. Certainly, I think the bookkeeper [anomaly] will disappear as we move toward tax season. That that will be a drag that showed up out of nowhere that should go away.
Like I said, it remains to be seen what the Affordable Care Act is going to do to health-care [employment]. The private education data, I'm afraid that's not going to get a lot better next year. I'm thinking maybe we'll do a little better--190,000-200,000 jobs per month--but certainly not the 250,000 to be more consistent with the rocket-ship, escape-velocity 3% GDP growth [estimates].
Stipp: So no changes to your employment forecast at this point, given this report, for 2014?
Johnson: Not at all. 190,000 to 200,000 average monthly.
Stipp: Great insights on a very disappointing and interesting, possibly suspicious, report for December. Thanks for joining me.
Johnson: Thank you.
Stipp: For Morningstar I'm Jason Stipp. Thanks for watching.