Wed, 5 Feb 2014
The short-term factors that led to a disappointing December jobs number likely did not entirely reverse themselves in January, says Morningstar's Bob Johnson.
Jason Stipp: I'm Jason Stipp for Morningstar.
Ahead of the government's employment report for the month of January, which we'll get on Friday, we got ADP private-sector employment data on Wednesday. It showed that 175,000 private sector jobs were added to the economy.
Here to offer his take on that report and some hints about what we might see on Friday is Bob Johnson, our director of economic analysis.
Thanks for joining me, Bob.
Bob Johnson: Great to be here today.
Stipp: The 175,000 number was lower than some had expected. What did you see when you looked at that headline number?
Johnson: I thought it was disappointing because [the ADP data has] been quite a bit higher than the government data recently. Now the trend line in the ADP data is down. We'd been in the mid-200,000s [a few months ago], around 200,000, and now 175,000. And in those earlier months, they were a little bit higher than the government report. So unfortunately, the trend is not our friend here; it's going in the wrong direction.
Stipp: When you say they've been a little bit higher, I think that came into sharp relief in December, when there was quite a divergence between what ADP showed and what the government employment report showed.
Johnson: Absolutely. We had well over 200,000 in [the ADP] report and 74,000 total (87,000 private sector), in the month of December [from the government report]. So, clearly the two reports missed, or crossed wires.
I think a lot of that's due to construction jobs, which somehow [the ADP report is] tending to find a ton more than the government is. [ADP] said we added 50,000 construction jobs in December; that was a huge number. It made no sense with cold weather and slowing construction activity in general. And lo and behold, ADP did revise it down to 30,000 [construction] jobs added in December. But now, [ADP] still [shows] 25,000 jobs added in January.
Stipp: In construction.
Johnson: Yes. And unless they're including snowplows in that number, I just don't see why that number should be any better than zero.
Stipp: If we see a continuation of the trend between these two reports, the fact that the ADP report is lower than it was in December could mean that we may see a government report that's also maybe not so fantastic.
Johnson: Not so robust, exactly.
Stipp: You mentioned the construction data being questionable. Let's talk about some of the other areas in the ADP report. Manufacturing also lost jobs. Of course, we saw manufacturing data recently, as well, that the market didn't really like that much. Is manufacturing facing a lot of headwinds right now?
Johnson: It would seem to be agreeing with that. They say we lost 12,000 manufacturing jobs, so that's certainly not a big help in the report. With retail jobs, if you are short a few there, less income is involved. You lose a construction job or a manufacturing job, and that's a bigger deal. That's why I'm a little worried about that number. I think it's supported by some the stuff we saw in the ISM report that scared everybody on Monday. One of the big falling items in that was employment.
Stipp: The mix between small companies, medium companies, and large companies was more even this time, and that's a bit different than what we've seen in the ADP report in recent times.
Johnson: I like to look at it on a percentage basis, because the large companies are a smaller percentage of the total businesses out there. But if look at it on a percentage basis, the large companies have really been doing considerably better than the smaller companies, sometimes doubling the rate of growth versus the small companies. Now this month, the rate of growth was the same for both, which isn't atypical January. I don't know why that is. But certainly large business has been the real surprise in 2013, and it looks like things are slowing down a little bit in 2014.
Stipp: In December, the government employment report showed 87,000 private sector jobs added, much lower than everyone was expecting. What is consensus thinking about January? Are they expecting a bounce back from that low number?
Johnson: Absolutely. People are saying, consumption is about the same, the economy might not be doing wonderful, maybe weather will do something to the numbers. But in general, the economy is moving along and has been for the last three or four months at kind of the same pace, maybe even a little bit better.
So, when people saw the 84,000 [jobs number in December], the immediate reaction was that there was a mistake, and that there either will be a huge revision to that number when we see the report on Friday, or the January number will look incredibly, unnaturally strong.
Stipp: How much better is the consensus thinking January will be than what we saw in December?
Johnson: For now they're being cautious. They're saying it will get back to the averages, which is about 190,000 jobs added, which is where we were for the last 12 months. I think they're hoping we'd pop back to that number, and theoretically, if you thought December was an accident, you should say [January's job gains] should even be more than that number.
Stipp: So we might see a revision for December and a number around the average for January, if this consensus is to be believed.
What do you think, though, you're a little below consensus for January's number.
Johnson: I'm thinking 150,000 jobs, instead of the 190,000. I can't help but think the weather is going to have some impact. I think the ADP numbers on construction are too high, and I also worry about retail. It certainly wasn't a great month for brick-and-mortar retailers, and I can see them cutting back employees and hours, both. So, I am a little bit worried about the number. I understand why people would say that the 87,000 [jobs added in December] looked like an accident. But I still don't think some of the things that caused the accident reversed themselves in January--maybe [they will] in February--but not now.
Stipp: You mentioned the ADP trend has been coming down. You're coming in below consensus for the government report for January. Would you say that we are seeing a slowing in the employment market? You mentioned weather, and some other factors that might be short-term. But if the averages are coming down over several months, are we slowing down fundamentally?
Johnson: If we come in where I'm thinking for January, [the average] will be up about 180,000 versus the 190,000-195,000 that we've been trending, which isn't enough to really frighten me, and I think a lot of it I can pin down to weather. But the crew that thought we were rapidly accelerating, and that employment was getting so much better, I don't think the numbers are showing that, either.
Stipp: We will find out what the numbers say on Friday. You'll be joining us to give your interpretation, but thanks for being here today to offer your insights.
Johnson: Thank you.
Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.