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By Jason Stipp and Robert Johnson, CFA | 10-03-2012 11:00 AM

Why September's Job Report May Be Better Than Expected

A revitalized housing market, better-than-expected manufacturing data, and favorable seasonal adjustment factors could give a modest boost to September employment, says Morningstar's Bob Johnson.

Jason Stipp: I'm Jason Stipp for Morningstar. We got ADP Employment data for the month of September on Wednesday. It showed 162,000 private-sector jobs were added to the economy. This was somewhat better than some folks had been expecting. What does it foretell for Friday's government report for September? Bob Johnson, our director of economic analysis is joining me today to give his insights. Thanks for being here, Bob.

Bob Johnson: Great to be here.

Stipp: So, 162,000 at ADP. What's your take on that top-line number? It was better than some folks were expecting moderately.

Johnson: Yes, I think that number was better, and I think the really neat thing about the number is now we've had kind of three months in a row where [the ADP number] is about 160,000 jobs added, and the government number has kind of been all over the place in that period. And last month, for example, it was considerably lower at only 96,000 jobs. So, a huge difference last month, and you can see discrepancies like that for a month. But then to have them kind of go on for three months like this, I think that this report probably bodes pretty well for Friday's employment report. I mean, I don't think we'll get all the way to the 162,000, but it shows we're not going to fall off a cliff in Friday's report.

Stipp: So the reports tend to converge somewhat, when one's a little bit higher than the other, they start to maybe meet in the middle somewhere. Is there a structural reason, though, why ADP maybe comes in higher than what we see in the government report, which has been the trend recently?

Johnson: Well, they actually have checked numbers. So, in some ways, I almost like the ADP numbers better than the government numbers and the trick is for the ADP people to try to convert the seasonal adjustment factors, so they look like the government seasonal adjustment factors. And also, if there's a lot of growth in the really small sectors, some of that doesn't get picked up maybe as well by ADP, as in some of the other sources.

Stipp: But the fact that we've seen higher numbers for a trend now of a few months with ADP bodes well on the upside for what we might see on the government report on Friday. One issue or one thing that you pointed out with the ADP report just looking at the sector level was financial services was surprising, not in its absolute strength, but in its moderate strength. What's behind that?

Johnson: It's interesting. We've had 14 months in a row where the financial-services sector has added jobs. This month it was 7,000. Again, as you point out, it's not a huge needle-moving number but we all kind of gave up the financial-services markets for dead for hiring. I mean, we thought, the banks are consolidating, a couple of big banks have had big layoff announcements, more fees, more regulation, less trading volumes. And we really thought that maybe there might even be a collapse in financial-services hiring, and in fact we've had 14 consecutive months of increases.

I think some of that might be mortgage processing. I mean, some of that's kind of anecdotal, but I am hearing radio ads in the Chicago area looking for people to process mortgages, many times a day, many different firms. So, I'm beginning to think, maybe some of the activity in the mortgage market is beginning to offset some of what the trading and the bigger banks are seeing in terms of problems.

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