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Jobs Data Improving, but Won't Change GDP

Fri, 11 Jul 2014

More small-business hires, a better mix of job openings, and the potential for wage growth--while positive trends--won't change Morningstar's Bob Johnson's GDP forecast.


Video Transcript

Jeremy Glaser: For Morningstar, I am Jeremy Glaser. After the strong employment report in June, are there other signs the economy may be picking up steam? I am here today with Bob Johnson, our director of economic analysis, to take a closer look.

Bob, thanks for joining me.

Bob Johnson: It is great to be here today.

Glaser: We got a few data points this week the first being a small-business confidence report. What did this show you? Are small businesses still hiring?

Johnson: The small-businesses report has been improving three months in a row; it's been one of the real bright spots in the economy. Certainly we've seen it in some of the jobs data that has come out; these key hirers lately have been small businesses after kind of a slow start.

The number that we just got now for June--we had three great months in a row, we went from low-90s to mid-90s in a pretty quick fashion--and now we are back off just a little bit in the June data. But there was a real silver lining to that, so much that the kind of confidence stuff which I am not a big fan of--it's kind of "Wow, what do you think about the economy, and it is good time to be in your business?"--that backed off a little bit. But the key thing is employment: Are they actually putting their money where their mouth is? No, they are actually hiring more people; the hiring data continued to be strong as it has for the last three months. And so we've seen a pickup in the number of people they plan to hire. And in addition, the number of job openings that they are offering and how hard it is to find employees all looked better than they had the previous month despite the overall index ticking back just a little bit. I think the fact the employment part is holding up is really great news for the economy.

Glaser: Staying on the jobs front, I know a metric that you've been looking at more closely recently has been the job opening and labor turnover. Could you tell us little about what that report is and what the data look like for May?

Johnson: Yes, it lags a month. As you point out it is May data, but because job openings is a key part of this report, you have to have an opening before you can fill an opening. This is kind of a little bit of a precursor and so it actually shows up one, two or maybe even three months after posting until it is filled and turns up in employment report. So, it is an early indicator that way, but it does come with a little bit of delay. We have the May data, and there is a few things that we look at. First of all, it is the number of openings that are out there, and that was really a great number at 4.6 million job openings. And that number is up about 21% from from a year ago. So, that's really had a nice healthy increase in the overall number of openings. Government even was up 10%, and that number has been fairly flat for long time. So, we're glad to see at least some growth here in the government side of the equation year over year.

Glaser: Now on the private-sector side, who is adding these jobs? Are these openings mainly kind of retail or hospitality, or are they higher-paying positions?

Johnson: You know, the market for jobs has kind of taken a little bit of the rap lately, that it's all about retail and it's all about restaurants and hotels, and we all know those are the one, two, and three [industries] of low hourly wages and low number of hours available. Even last year in 2013, yes, so those sectors were strong and very important contributors to job growth especially early on. But keep in mind that even last year the professional businesses and services which is among the best-paying and among the higher-hour sectors was also a very, very strong performer.

Now we've seen in the job-openings report is that that sector of professional and business services, your architects, your lawyers, and your computer programmers, all those kind of folks had the biggest number of openings out there at 914,000 of those 4.6 million some openings that I spoke of. Like I say those are good paying jobs and that's up almost 300,000 jobs from a year ago. So, that's a nice gain.

The second leading category was the food service and hospitality that we've talked about. And that increased by just over a couple of hundred thousand off a somewhat smaller base, but again that was half the openings that were available in the professional and business-services category. And one of the really interesting ones, the retail sector, actually was down year over year. The number of openings was 460,000 instead of 485,000. So, clearly the mix is looking a little bit better if you look at the job-openings part of the report.

Glaser: Now what does it look like in terms of the number of job openings versus people looking for jobs? How many people are chasing each of these positions?

Johnson: Well, you know, we've come so far in that, in both directions. We were under two [unemployed people per job opening] when the recession began, kind of mid-ones in terms of the number of unemployed per opening. That number in the middle of recession got as high as seven unemployed people for each job opening. Well now, we have fallen way back and the number is about 2.1. It's still not quite back to where we were overall before the recession began. But if you throw out a few categories, and we are, kind of, back to normal, so to speak.

So this is one of the things to me that indicates labor market tightness. This indicator was one of the few things that had improved a lot lately that maybe indicated that the jobs report that we got for June would look a little bit better as it eventually did.

Glaser: So if it sounds like the labor market is tightening, does that mean that we should be worried about wage inflation? Is that something on the horizon?

Johnson: I think it's certainly a possibility, and I think when you get the number of people looking for work down so much compared with the number of openings that are out there, I don't think that you could help but have wages start to move up. And certainly the large gap that we saw between hires and openings has closed dramatically, and that means that people aren't doing the just-in-time hiring thing anymore. They are posting an opening; it's taking longer to fill those openings.

The gap between hires and openings got as high as 2 million, and now they are nearly really equal. So I think that speaks to a labor market that's considerably stronger and that we probably will see higher wages. But you know, for whatever reason, the number of quits hasn't improved as dramatically--that is, people voluntarily leaving the labor force.

People still aren't shopping around for jobs; they are not jumping to the next job for a little bit more money. They are still a little bit scared of what happened in the last recession, and that kind of shows up in the numbers, as well. That's probably holding back the wages. People aren't moving because they can't sell their home. They may not take a job that's as far away as it used to be because gasoline prices are so much higher than they were four or five years ago.

So all that's limiting mobility a little bit, and that's been holding back wage growth a little bit. But I think now, we are probably on the cusp of seeing some pretty good wage growth in the months ahead.

Glaser: But if the labor market is a little bit tighter, we could see some wage growth. Are consumers actually out there spending? We've got some shopping-center sales numbers this week. What do those show us?

Johnson: That's my all-time favorite metric, and it went out-of-favor a little bit this winter because the numbers did get awfully low. It looked like maybe for some of them was just because Amazon and others that did online sales were taking away from shopping centers. We got as low as kind of 1.5% year-over-year sales growth at shopping centers, which isn't even as fast as inflation. So they were really losing ground.

Typically that number ranges between 2.5% and 3.5%, and I was really getting a little scared on that one. Well, now we've had two weeks in a row where we've been above that 3.5% mark, at 3.6% on a five-week moving-average basis. So that's some great news because consumers are what drive the economy. I don't look at any confidence surveys. I love the look at what they're actually spending, and this is data through, just last Saturday, so not long ago. I really like what I'm seeing there. And consumers, overall, are 70% of the economy. The shopping center portion is just a small bit of that, but I am really glad to see the improvement we're seeing there.

Glaser: So taking it altogether, does this data point toward an economy that's still kind of stagnating, or are you really seeing some real growth?

Johnson: I continue to hold in with kind of my 2% to 2.5% prediction--it will probably be at the lower end because of the first quarter--for the full year of GDP growth. I think we're going to see something that looks pretty close to 3% in the second quarter and maybe even 3.5% or more in each of the last two quarters of the year.

So maybe a little bit of acceleration, but not dramatic when you add the full year together. Some of this is just a bounce back from the poor first quarter. I continue to think the 2% to 2.5% overall growth rate makes a lot of sense and that people are little scared now, Europe is slowing, China's not as good as it was, and now everybody seem to be worried that we're slipping back into another recession. Well, that's as ridiculous as people in January that thought we were going to grow 3.5%, 4% this year. I think I continue hold in with the 2% forecast,and I think we'll be there.

Glaser: Bob, as always, thanks for your insight.

Johnson: Thank you.

Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.

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