Jason Stipp: I'm Jason Stipp for Morningstar.
Following a pretty good employment report from March, Morningstar's Bob Johnson has had some time to pull out some longer-term themes that he is seeing in the employment market. He is here to talk about those today.
Thanks for joining me, Bob.
Bob Johnson: Great to be here.
Stipp: So you said that you looked through the report, you spent some time with it, and you formulated a list of some pluses and some minuses that you see in the job market. I always like to get the bad news out of the way first.
When I was speaking with Vishnu about the report, he mentioned we might see some very short-term headwinds with supply chain disruptions because of the disaster in Japan, for example, could be a short-term headwind we should keep on our radar.
You have a couple of other ideas. What are you seeing that might put a little bit of a cap on employment right now?
Johnson: Well, I think one of the bigger things out there might be some of the merger and acquisition activity, and certainly as corporations have built up cash on their balance sheets, they have spent some of it on manufactured goods, but they have also spent a great deal of that cash on mergers and acquisitions.
Unfortunately, one of the things they do in merger and acquisition, the first thing they talk about is, "well, what are the synergies of that." Unfortunately, that's code for "how many people can we lay off?" And ... you've got the AT&T and T-Mobile deal going on, a lot of very, very big deals, where it's just obvious that there are going to have to be some cuts in labor. You can't put the two companies together without cuts and labor and distribution cost, the deals don't make any sense.
Stipp: So when you do look at the weekly claims data, though, do you see any indication that we're seeing more layoffs right now?
Johnson: Right now we're in a great shape, and the Challenger Gray report would say the same. Right now in terms of the unemployment claims, we're back down to almost a number that I would call normal.
Stipp: So, so far we're not seeing a huge effect from the M&A but certainly something to keep on the radar?
Johnson: Right. I think it has kept the number down, and by the way, I think M&A last year kept some of the unemployment numbers from getting better, so it's a little bit of a continuation of a trend.
Stipp: So it could be a little bit hidden. We might have seen better improvement perhaps than we've seen so far.
So I wanted to talk a little bit about the numbers and the improvement that we have seen. So I don't think it's been gangbuster employment growth, but we have seen a trend month-to-month of employment growth. We also got some news this week about McDonald's, and they might be doing some hiring. And as a percentage of the number of jobs we've been adding per month, the number of people McDonald's is looking to hire is a pretty big chunk of that.Read Full Transcript
Johnson: Well you are alluding to the McDonald's press release that they are going to hire 50,000 people, and they are going to have a job fair or you can go to any McDonald's and apply. 50,000 jobs is a lot of jobs. I mean as we pointed out, there were 230,000 private-sector jobs created last month, to have one [company] say we're stepping up and hiring 50,000 is a big deal.
Stipp: Are these the sort of jobs, though, that you would consider to be higher-quality jobs, because I think it's a job that maybe teenagers might have for a few weeks, but is this going to really lead to a real boost in employment in a real sense?
Johnson: Well, I think that certainly having any money in somebody's pocket that hadn't got a job is beneficial, and even a lower-end job, from an economic standpoint, that money tends to get spent more quickly than people that have a high-end job, where people tend to save more money. So it's not all bad for the economy. Now, it may not be wonderful for the individual person. And also, I will point out for McDonald's, they are claiming they are also hiring store managers as well as corporate personnel, too.
Stipp: So potentially some longer-term jobs, people with a higher skill set potentially could be hired there.
Johnson: And I would add that the restaurant sector, as we talked about many times, has been really slow in this recovery, and we saw a couple of good months in terms of the retail sales report on restaurants, and now it looks like they are translating those better sales in employment hiring. So, it may not be just McDonald's.
Stipp: So, ... hopefully more restaurants looking to hire could be a good sign for the economy overall because that is a more discretionary area, perhaps?
Stipp: Okay. So, I also want to talk to you a little bit about manufacturing because we continue to see that manufacturing was adding some jobs, and this is an area that had a bit of a lull last summer but has also started to come back since then. What do you make of the activity in employment in manufacturing right now?
Johnson: Well, if everybody criticizes McDonald's and the burger flippers, and low-wage jobs, I think the good news is that manufacturing--the durable goods part of it--has added almost 300,000 jobs this recovery out of a 1.5 million total that we recovered, and it's an absolutely tiny part of the employment market anymore, but to have it grow that much of the total growth is really good news. In the last two recoveries, we didn't grow manufacturing at all; we just slowed the rate of decline.
Stipp: So, what do you make of the activity that we are seeing and the growth that we are seeing in employment in manufacturing? What might be behind that?
Johnson: Well, I think there are a number of issues. I think the weaker dollar has certainly helped. Some of the agricultural product stuff has probably helped a little bit, and the emerging markets needing capital goods, which they can only get here. So, I think those are probably the big things that are really contributing to that.
Stipp: Do you think the autos are playing a role there as well? It seems like the prospects for autos are a little bit brighter now than they were a couple of years ago.
Johnson: Well, you know, even there, if you think about it, we went from an auto market where we were talking about 9 million units or so at the worse time and now we are up to 13 million on a regular run-rate basis. That's a 50% growth number for an industry that isn't tiny.
Stipp: Sure. So a question about autos, though. Normally in a recovery you might see auto sales do better a little bit earlier than we saw this time around. So, what do you make of the fact that we are seeing that recovery and potentially some boost to employment from that area at this point in the recovery?
Johnson: Well, I think, I was a supporter of it, I will say that and maybe I was wrong, but the Cash for Clunkers certainly gave us one big spike and then one big downturn and then the thing sat for a little bit. So, I don't think that actually may have helped in the long term, it just maybe shifted the data around a little bit, but we are clearly improved now. It came later in the cycle, I think because of lack of credit availability. Now, that as credit has come back for the auto market, I think people are back shopping for cars again.
Stipp: So I think in a related sense, we're still waiting for a recovery in housing, and this is something obviously also related to the credit crisis, the housing crisis. What does that say about the employment situation the fact that we haven't seen housing recover yet?
Johnson: Well, it's good news, bad news. Like I said, we lost about 8 million jobs in this recession, and 25% of them were directly related to homebuilding--directly to people that build houses. I think if you counted the people that did the mortgages, and the furniture that go in the houses, and the people who processed all the paper, I bet you are talking 3-4 million people out of 8 million were housing related. So until housing comes back, those jobs aren't coming back. So, that's the bad news because it's going to hold the rates of growth. We might have typically thought of a good recovery being 400,000 or maybe 500,000 new jobs. I think this is going to keep it down to the 200,000, 250,000 maybe 300,000 per-month job level until housing gets better. And when housing gets better then you can have a good number.
Now the good news is that that means we may extend this recovery a little bit longer than usual, because we haven't had the housing growth yet. Usually that comes first. This time it's coming last.
Stipp: Another potential tailwind perhaps for us, or at least something that's making the situation look a little better, could be the competition that U.S. workers have with overseas workers. There was an article this week in The Wall Street Journal that talked a bit about the job markets overseas and what they are looking like. Could there be some positive news out of the tightness or the tightening state of labor market overseas for U.S. workers?
Johnson: Well, I certainly don't want to give anybody the impression there is going to be a ton of jobs flooding back into the U.S. from overseas markets, but I think maybe the idea that we're automatically going to ship 100,000, 200,000, 300,000 jobs a year out to foreign markets, maybe that's not going to happen. Maybe we flattened out, maybe we even get a few back.
The reason is they are getting very tight in some of the foreign labor markets. The article you alluded to talked about India, that they have a lot of college graduates, but many of them have to retrained after they come out of college by Indian companies.
Stipp: So, not necessarily a whole group of people just waiting to take a job at a rate that's much lower than U.S. workers. It's going to harder potentially for companies to find the labor that they need overseas?
Johnson: Right. As things get tighter over there, and the prices of their food and fuel goes up dramatically, those people are in a better position to demand more wages. I think even last year we saw wages in China go up 30%. So, clearly that's closing some of the gap.
Stipp: Last thing I wanted to check in with you about, Bob: You've mentioned that you are not only looking at the unemployment rate, but also the employment rate, the number of people who actually have jobs. What trends are you seeing there?
Johnson: Well, the news there isn't probably as good as the unemployment number is. The unemployment number looks great. We've gone from over 10% down to 8.8%; wonderful news, right? Well, I like to look at it as how many people are employed per unit of population, and that number is better. At the worst of the recession, we were at about 58.2% of the population was employed, and down from a peak of just over 63%, and now we are back up just a few tenths to 58.5%, so a little better, but not a lot yet.
Stipp: What would you say is the disconnect between the great improvement that we've seen in the unemployment rate, about a percentage point or so, and the more moderate improvement that we've seen in the employment rate?
Johnson: Well, a lot of people have dropped out of the workforce, I think. And there is some good news and bad news to that number. Part of it is because more younger people, who have a particularly hard time finding a job, are pursuing college and graduate degrees instead of entering the workforce. So, that's a good way of losing participation. A bad way is somebody saying, "well, I can't find a job; I'm not even going to bother to look."
Stipp: So, maybe there is some retraining going on as well; someone who lost a job has gone back to school to get a new skill set.
Stipp: ...Hopefully they will be more employable in the market going forward.
Stipp: Well, thanks for the insights, the longer term perspective on the employment market, Bob, and for being here today.
Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.