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By Jason Stipp | 02-01-2012 10:00 AM

Is Job Growth Really Slowing?

Friday's January employment report is likely to show deceleration from December's number, but the general trend of slow, steady improvement is persisting, say Morningstar's Bob Johnson and Vishnu Lekraj.

Jason Stipp: I'm Jason Stipp for Morningstar. We got the ADP private-sector employment report for the month of January on Wednesday. It showed 170,000 private payrolls added during the month. This is a deceleration from ADP's private sector payrolls estimate for December, which was 292,000 private-sector jobs added.

What does this portend for Friday's report? Here with me to offer their insights are Morningstar's Vishnu Lekraj, an equity analyst covering the employment sector, and Bob Johnson, our director of economic analysis.

Thanks for joining me, guys.

Vishnu Lekraj: Thank you.

Bob Johnson: Great to be here.

Stipp: So, we did see a deceleration in the ADP report from 292,000 which is a pretty strong number, all the way down to 170,000. Deceleration. Should we be worried about what's going on in labor market from December to January?

Johnson: No, absolutely not, especially from the ADP report. Remember that the December number for ADP is inflated. When we talked about that before, people are left on the payroll until the very end of the year when they mail the W-2s and then companies drop them out. And so, there is a weird phenomena that happens in there, where it makes the numbers look larger in December, and now that's going to go away. So it's just how it flows through the systems of ADP's numbers, not so much as if it is a real change in the economy.

Stipp: Vishnu, when you looked at the ADP report, did anything jump out of you, or was this about as you expected?

Lekraj: It was a ho-hum report. Nothing really jumped out either way. No surprises. Just like it's been doing for the past year, the services sector and small and medium businesses were the drivers of growth. Manufacturing produce 18,000 jobs, which has been in line with what's it's been doing. Construction was slightly up, which is a great improvement over the deep decreases of the past two years.

So, overall, it's a normal report. We expect to see this continue, and no one should take this report as a negative. But it's not necessarily as a huge positive either. It's just consistent.

Stipp: Bob, on Friday, we know there are going to be a few changes to the payrolls report and some of the methodology in how data was collected. Might that mess with the numbers a little bit?

Johnson: Absolutely. And I think there were two things going on. Let's start with the household survey, which is the one on which they calculate the unemployment. They do what they call rebasing the population once a year. Instead of saying how many people got added each month in terms of the population—which would be kind of a hard thing to do anyway--they do it just once a year. Then they actually rebase it on the new population numbers they have as of December.

And so that does funny things to the unemployment rate and the number of people employed who are in the databases. That actually makes the series noncomparable going backward. So, unfortunately we won't have that as a double check on the establishment survey.

Stipp: I know that we also saw, in December, that there were some particular areas of strength. Do you think we might see some of those areas reverse themselves, which might be a bit of a headwind for the January report?

Lekraj: Yeah, the couriers really added a lot of jobs during the December time frame, and we may see that reverse back out this month, just to kind of keep their jobs or keep their labor pool in line with what they're seeing in terms of revenue and volume.

Stipp: And Bob, when we say that we're seeing a little bit of slowing-down here, I know that you look at more than just one month; it's important to do that. Do you expect though that we might see a slowing in the trend that we've seen? Maybe it won't be as strong as we saw in the fall when you may be look at three months at a time?

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