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By Jason Stipp | 12-02-2011 09:00 AM

Job Market Improving, but Is It Enough?

Morningstar's Bob Johnson and Vishnu Lekraj dig into November's job gains, the notable unemployment rate drop, and whether further employment stimulus is needed.

Jason Stipp: I am Jason Stipp for Morningstar. We got the government employment report for November, 120,000 jobs were added [to the economy], and the unemployment rate ticked down somewhat dramatically to 8.6% from 9%.

Here with me to dig into the details of that report is Morningstar's Vishnu Lekraj, he is an equity analyst who covers the employment sector, and Bob Johnson, director of economic analysis.

Thanks for joining me, guys.

Vishnu Lekraj: Thanks.

Bob Johnson: Great to be here.

Stipp: So you guys were probably a little bit on the bullish side, but mostly right on target with the number of jobs that you said you expected to be added on Friday. Vishnu, what's your take on the top line 120,000 that we added?

Lekraj: Well, the private sector added 140,000, so you subtract 20,000 from government, and it was pretty much in line what everyone expected. It's been in line with what has been happening over the past six months--no surprise there. And most of categories, there is no surprise on any of them. The big surprise, though, was the unemployment rate, which fell to 8.6% from 9%.

Stipp: So I want to talk to about the unemployment rate in a moment, but before we get there, Bob, there were revisions to prior months, too, revised upward. So when you look at those revisions and also the most recent data, what does the trend look like now?

Johnson: Well, it's still very steady, but it's actually slowing creeping up. We had been running about 1.6% annual employment growth, and that number is now up to about 1.74%. So that’s decent size growth. We'd like to see it closer to 2%, but at least we're adding; when you look on a year-over-year consistent basis, we're really making some nice progress. Again we need more, a lot more, but it is a step in the right direction. We've had a few very good months now in terms of long-term trend.

Stipp: So the revisions lately have been biased to the upside. We've seen them revising up more than we've seen them revising down. Is there some sort of systematic error that they're just undercounting the number of jobs that we've been adding?

Johnson: When you having an improving economy and you get people starting new businesses a little bit, and you have that phenomena going on, they historically kind of undercount small businesses and new businesses that are recently formed. They try to make adjustments for that, but those tend to get missed in the data, and eventually get revised back in, and some of the government data, too, has recently been revised as it comes in. So the bias is generally right now towards the upside, and obviously when we go into a recession, it's the exact opposite phenomena, that we're understating [losses] every time, and [every month] you say, it was worse than I thought, and you have revise down the previous months. So we're on the other side of that curve.

And let me show you how dramatic that was. I don’t know if you remember how scared all of us were in August, when the actual reported number for August was zero job growth. Well now, we've grown almost 100,000 in August after a series of three different revisions. So, clearly you have to be very careful with these numbers.

Stipp: I think that’s a good point, because when we are looking at the entire labor market number, we're looking at these 100,000, 120,000 [gains per month], that’s a pretty small percentage. So actually within the range we've seen, it seems that there could be some margin for error there overall.

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