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By Jason Stipp | 01-07-2011 09:53 PM

What's at Work in December's Job Report

Morningstar's Bob Johnson and Vishnu Lekraj dissect December's job gains, the big drop in the unemployment rate, and January's payroll prospects.

Jason Stipp: I'm Jason Stipp for Morningstar.

After what looked like a stellar ADP jobs report on Wednesday, the government report on Friday showed only 103,000 jobs added. This was less than maybe some elevated expectations following Wednesday's ADP report.

With me to dig into the details is Morningstar's Vishnu Lekraj, an equities analyst covering the employment sector, and Bob Johnson, director of economic analysis for Morningstar.

Thanks for joining me, guys.

Bob Johnson: Great to be here.

Vishnu Lekraj: Thank you.

Stipp: So Vishnu, we talked about the ADP report after it came out. It did look really good. You saw some estimates going up [for Friday's report]. You bumped your estimates up a little bit, and it turned out that that report was very different than what we got on Friday. What's your take on the two reports?

Lekraj: ADP has been off every month, and now I'll give some advice to ADP. They are a very good company. They have a wide moat in our estimation in terms of the company's operations. But this report they put out every month, it's always off, it seems like. It's off by huge amount.

So, they need to stop marketing it as a proxy for the government number or they need to change their method, because it's just been off.

But it said that service sector [employment] did go up a huge amount, and when you look at the government report from today, the service sector did produce a lot of jobs.

Stipp: I'll get to some of the underlying data in a moment. Bob, you were traveling this week, but you also saw the ADP report. Did Friday's report disappoint you a little bit after what you saw on Wednesday?

Johnson: It did. I would have thought after the ADP report, the numbers would have been better. I had been hoping for revision back on the November numbers, and we got a small one. We added 30,000 more jobs than we thought we did in November, for a total of 70.

But when you average the two months together, which is the way I suggest you look at the payroll numbers, we really only gained 70,000-80,000. I had been hoping for over 100,000 average between the two months.

Stipp: So what have you been seeing, then, as the trend? We say this every single time. Don't just look at one month's data, but the trend that's been happening. What are you seeing then given this month's data over the last few months?

Johnson: If you look at even the last year, the numbers have been relatively consistent. We've added about 100,000 jobs a month. That's where we are at in terms of the establishment survey.

If you look back at this whole recovery and recession: We lost about 8 million-8.5 million jobs throughout the recession. Now, we've gained about 1.1 million of those jobs back.

Stipp: So Vishnu, to pick apart the December report again, and look underlying, what were some areas of strength and some areas of weakness that we saw last month?

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