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By Jason Stipp | 04-04-2012 01:00 PM

Will March Job Growth Be Enough for the Market?

A moderate slowdown in March employment growth should not worry investors, so long as the economy manages about 200,000 new jobs.

Jason Stipp: I'm Jason Stipp for Morningstar.

We got the ADP private payrolls report on Wednesday; it showed that 209,000 private sector jobs were added to the economy in March.

What does that mean for the government's employment report that's going to be released on Friday? Here with me to offer their take is Morningstar's Vishnu Lekraj--he's 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: Glad to be here.

Stipp: We looked to the ADP report; it was about as expected. Vishnu, what was driving those job gains that we saw there, 200,000-plus?

Lekraj: Small and medium-size businesses in the service sector again drove the growth mainly for this report. Now what is really positive is that the medium-sized businesses are becoming a bigger and bigger piece of this puzzle. In the past few months, it was the smaller businesses. Now it's moving on to the medium-sized businesses, which is very good news. Construction was up again, 13,000, which is very good. The financial sector, which is a little bit of a surprise in my opinion, went up 8,000--given what's going on in terms of layoffs and reorganizations in the financial sector, that's a pleasant surprise.

Stipp: Bob, I know that you've been waiting for the services sector to show some signs of strength. We've seen a lot more strength throughout the recovery on the manufacturing side. We also got the ISM index, and it disappointed some people that were watching the market today. What do you make of the services strength that we saw in jobs in the ADP report versus the services ISM index that came out?

Johnson: With all of the government statistics, I've learned that you really have to take a look across a broad cross-section, and not take things out of context too much, because we had a really good report out of the personal spending report that [showed] people were gearing up their spending in services in February. We saw the employment part of ADP on services look better. The ISM report on the services industry, which we got today, was just a little disappointing, but it was still a large positive number, and the strongest part of that index was the employment index, which was actually up, which indicates that people don't think the slowness that they saw in the top-line index will continue in the months ahead. They're building employment for months ahead. They're being more optimistic.

Stipp: So definitely when you're looking at services employment it looks like we're seeing some strength there.

Vishnu, we did see a little bit of moderation from the February to the March numbers in ADP. Is there anything that's statistically valid?

Lekraj: No. At this point in the recovery, the growth number or the percentage growth is not so much of a huge deal. What you have to watch is the actual number that's coming out, because if that number is above 200,000--a normalized level of recovery during a normal cycle--then that's key. If it falls below that mark, then you're in trouble. But as long as it stays at that mark or above, you're in good shape.

Stipp: Bob, if we see some sort of slowdown in jobs from February to March, just a little bit, what would you make of that?

Johnson: I'd say it's probably weather-related. We've had three or four months here of above-average weather, and there is some seasonality with construction workers and a lot of other jobs that are dependent on the weather that go up and down, and we've had better expected weather, and that's really helped keep employment up in months when there's huge seasonal adjustment factors. So we usually have a January and February that are really soft, and then you have a big bounce in March. Well, this time we had a pretty strong January and February already. So we'll get less of a bounce. It doesn't mean the economy is getting any weaker. What it means is that the weather has just finally leveled out and caught up with us a little bit.

Stipp: Nice weather pulled some of that employment forward into the January-February months that you normally would see not until March in other years.

Johnson: That's why everybody is looking for the number tomorrow to be softer than in February. Again it's not a slowing; it's just weather-related. And I think it's more of a guess. We might get lucky and still have a great number tomorrow.

Stipp: Vishnu, I want to turn and talk about the Fed. The Fed has been in the news a lot this week. Things the Fed said may have been moving the market, based on whether the Fed's going to do more stimulus or not.

I think the employment number is obviously something that Fed's going to be watching very closely in making that decision. From your read, where is the Fed right now? What's their policy and what are they looking for to make that decision on more stimulus or no?

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