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Job Growth Should Look Up From Here

Sat, 8 Mar 2014

February's better-than-expected job gains were still below the 2013 monthly average, but we should see acceleration--albeit uneven--in subsequent months, says Morningstar's Bob Johnson.


Video Transcript

Jason Stipp: I'm Jason Stipp for Morningstar. We got the government data for the February employment report on Friday. It showed that a better-than-expected 175,000 jobs were added to the economy last month.

Here to offer his take on the report is Bob Johnson, our director of economic analysis.

Thanks for joining me, Bob.

Bob Johnson: Great to be here today.

Stipp: You were expecting a little less than consensus; the number was actually a little bit more than consensus. So how do you feel about this 175,000 number? It looks pretty good.

Johnson: Yes, it looks pretty good. It's better than we thought. There was clearly less of a weather effect than we had expected, and a couple of categories did really quite well. I was pleased with the number.

Stipp: Despite the fact that this number was better than expectations, it's still a slowdown from the growth rate that we had seen in 2013. For the full-year 2013, we averaged about 189,000 jobs per month. When you average the last three months--and they revised January and December, so that's included here--it's about 129,000 per month. We are seeing some job growth deceleration. Is that a big concern for you?

Johnson: I think there is some small weather effect that's in the numbers, and maybe we'll see a little bit of a bounce-back from that. I'm not really worried about the number. I think we will still be at a solid 190,000 per month as an average for the full year. We never do 190,000 every month. Last year, we had a couple of months that were 280,000 and a couple of months that were 75,000. These are volatile numbers, and they are often revised as well. So, I'm certainly not panicked or feeling prone to pull my forecasted numbers in here.

Stipp: That's a good point. The average is almost never the number you get. It's usually above or below and sometimes by a lot.

Let's talk about some of the underlying sectors that performed better than expected. Construction was one of those, with 15,000 jobs added in what was a pretty cold, nasty month weather-wise.

Johnson: Yes. That was really a surprise, and it's one of the reasons a lot of people are running around saying weather didn't have any effect, which I don't think is exactly true. But it seemed a little bit odd that in such cold weather, construction did quite well.

Stipp: And you told me that restaurants were one of the biggest surprises for you.

Johnson: Yes. They gained about 21,000 jobs, and I expected them to lose 20,000 or 30,000 jobs, so that was the biggest swing factor. That's why I was pretty negative on what I thought would be in the report today. As it turns out--and maybe the number gets revised away--but it seems as if the one mad dash people made out into the cold weather was to a restaurant. The restaurant number was up rather sharply. The general trends in restaurants show extreme discounting, and other things have been going on. I was really thinking, even if the weather hadn't been bad, that it would've been a relatively bad number. Instead, bad weather and all, we got a halfway decent employment number out of restaurants.

Stipp: Maybe there was some cabin fever, with people getting sick of eating at home in this bad weather. What about retailers, though? Were people getting out of the house and braving the weather to go shopping?

Johnson: I guess they didn't want to walk the long parking lots at the mall. We lost a few thousand jobs in retail. It was weak. But again, it's hard to tell: Was that all weather or was that maybe due to a bit of an e-commerce trend? Starbucks CEO Howard Schultz is saying we have hit the inflection point on e-commerce, and it's really beginning to dig into shopping center sales.

Stipp: We'd seen retail employment be unexpectedly strong for a while in 2013, so it's important to keep that in mind as well.

Government finally added some jobs.

Johnson: Yes. That was a nice swing factor. We lost quite a few the previous month, and now we gained some this month. It was all on the state and local government level. The federal government actually did manage to lose jobs yet again.

Stipp: And the temporary and business services category added some, but you think weather might have been a factor there.

Johnson: It's really hard to tell. It was a strong category. It's been kind of weak lately. I wonder if part of the temporary help business did well because some people in the far suburbs, for example, couldn't get into work, and businesses had to call in a temp to fill in for that person. I am wondering, if that maybe artificially boosted the number just a little bit. But again sometimes temporary help means that businesses are getting ready to hire more people, too. My read of it is, it's probably a weather-related benefit.

Everybody keeps talking about the weather as if it's a one-way street, that it's killing all the numbers. But I will tell you, it's helping a lot numbers. If you are flying an airplane to Florida, if you are a hotel or restaurant person down in Florida right now with all this cold weather that's going on, you are doing exceptionally well. If you do snow removal, you are doing exceptionally well. And if you make boots and coats, you are doing well. So it's not at all a one-way street. Everybody says weather is really killing the numbers, and we'll have this huge bounce-back, but it's also helped a few categories.

Stipp: Let's talk about the unemployment rate. That did tick up to 6.7%. Is that a big concern?

Johnson: No. Actually that was a piece of good news in the report. It's a sustained pattern that we've seen that has really gotten me excited. Over 500,000 people joined the workforce, began looking for work in January, and then another 300,000 in February. That means people are confident enough to go out there and seek a job--they are not sitting back--and certainly they are going out and looking for work in a world where it's not very nice to go outside and look for a job. That's really encouraging.

As more people look for work and are so-called "participating in the labor force," it makes the unemployment rate look a little bit higher than it otherwise would.

Stipp: That's one of those figures that can actually go up as confidence is going up, but maybe the jobs haven't all opened up for them just quite yet.

Johnson: Yes. And the other thing about that number is, we really thought the participation rate would sink a little bit, as we lost the 99-week unemployment insurance in December. We had North Carolina as a template. We really thought that participation rates would fall like a rock, and they really have not.

Stipp: Something else that's a good sign for the employment market is the average hourly wage and the trend that we saw there, which indicated that there could be some tightening in the employment market.

Johnson: Yes. We were up in wages 0.4% month-to-month. That's a pretty big number. We have had a few good months here on the wage front. As that number moves up, it means that the labor markets are tightening, and it's a very good thing for employees.

By the end of the year, we are going to be talking about labor shortages and not unemployment rates. I really think we are at the front end of that curve right now. The number of people that are working age is actually beginning to shrink here in 2014, and definitely we will see it in 2015. So I'm thinking unemployment will be fading into the radar screen in terms of being a problem.

Stipp: The wage ticked up a little bit, but the actual hours worked did not. Why the divergence?

Johnson: I think the hours worked was the one thing that was impacted by weather, and it was pretty much across the board. You saw a few bigger hour reductions in construction and manufacturing, but even things like education and health care hours worked were down; you would wonder, how could that be affected? But almost every category was down in terms of hours worked.

It's a number that's usually relatively stable and doesn't move much. We usually are at about 34.4 average hours per week. Well, it turns out the revised December and January data both found hours worked at 34.3, and now the February number was 34.2. It seems like that's the one place where weather raised its ugly head.

Stipp: We had 189,000 jobs added on average in 2013. You are expecting about the same in 2014. Given that we are starting off the year a little behind the eight ball, you would expect to see some acceleration in job growth at some point during this year?

Johnson: Yes, I think so. It's not unusual. Last year we had months as high as 280,000 and as low as 75,000. This is not a number that progresses like 175,000 to 180,000 to 185,000. This is a data point that in one month is 100,000, the next month 280,000, and the next month it's 50,000. And then it's often revised away, so they all look like about 150,000.

You have got to be careful with the numbers. They jump around. Looking at the month-to-month numbers is probably a little bit of a silly game, but the year-over-year trend is still very much intact in that 2% growth area right now.

Stipp: Bob, thanks for giving us the perspective we need on the employment market and for joining me today.

Johnson: Thank you.

Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.

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