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By Jason Stipp | 07-05-2012 09:30 AM

Two Positive Drivers for the Employment Market

Although they may not boost Friday's labor report for June, health care and construction should be tailwinds for the job market in the months ahead.

Jason Stipp: I'm Jason Stipp for Morningstar.

We got the ADP Employment Report for June on Thursday. It showed 176,000 private-sector jobs were added. This was quite a bit more than folks were expecting, but does it bode well for Friday's report from the government?

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 being here, guys.

Vishnu Lekraj: Thank you.

Bob Johnson: Thank you.

Stipp: Vishnu, 176,000 was quite a bit above consensus for ADP. What's your take on that number?

Lekraj: It was a good number, but you can't get excited over the ADP number 100%, because there are some correlation problems between this number and the government number usually.

Again, though, it was a pretty good number. You saw that medium and small businesses pushed the number up, and within that number, the service sector was the big star. Construction added close to 10,000 jobs. The financial sector added about 11,000 jobs. So, there wasn't a huge negative, but we'll have to see what the government is going to report here on Friday.

Stipp: We did see an upward revision to the May number in this ADP report. Do you expect that we'll see upward revision on Friday when we get those [government] numbers for May, which was a pretty bad month for the employment market?

Lekraj: Probably, but how they're going to revise their numbers is up for debate. ... It's just very hard to get a read on that, but the possibility of them raising [the May number] is there.

Stipp: Vishnu mentioned the large versus small--small businesses again powering ahead in the employment market compared to their larger counterparts.

What's behind that, Bob? What are the some of the trends driving the small business employment growth we're seeing?

Johnson: Small businesses are very dependent on what's happening in the U.S. and overall general consumer confidence. So, certainly, they have done better. There were points in the economy where the small business sector did very poorly, and their profits were poor, their outlooks were poor. So they weren't hiring anybody. Now, as their outlooks improve, they're doing a little bit better.

The large corporations, on the other hand, which are actually a pretty small percentage of the total working population, but the large businesses are very worried about Europe, and starting to cut back on their headquarters numbers. So, the large businesses, the growth we're seeing there is much, much smaller than what we're seeing in small businesses, and by a huge factor.

Stipp: So with a large business having more resources overall, they can probably shift some folks around if they're seeing more demand in this division or whatever. Whereas if a small business is seeing more demand, they don't have a lot of choice, but maybe bring a few people on.

Johnson: Exactly.

Stipp: Vishnu, when we're looking at the hiring and firing report, you also see some trends there. What does that say to you about large versus small businesses and some of the trends, and are we seeing layoffs heat up or cool down or what's the trend there?

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