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By Jason Stipp | 11-02-2012 09:30 AM

Job Market Working Its Way Back to Normal

Solid October employment gains along with upward revisions to prior months show a job market approaching what we'd typically expect for an economic recovery, say Morningstar's Bob Johnson and Vishnu Lekraj.

Jason Stipp: I'm Jason Stipp for Morningstar.

We got the government payroll report for the month of October on Friday. It showed 171,000 jobs were added to the economy. This is better than most economists' expectations, but more in line with our own experts here at Morningstar.

I am checking in with them today: Bob Johnson, our director of economic analysis, and Vishnu Lekraj, who is an equity analyst covering the employment sector. They're going to give me their insights on that report.

Thanks for joining me, guys.

Vishnu Lekraj: Thank you.

Bob Johnson: Great to be here.

Stipp: First of all, congratulations: You both thought that we would come in above consensus, and we did in fact come in pretty far above consensus with that 171,000 jobs added. That included 184,000 private sector jobs; government subtracts it a little bit. Vishnu, your take on that top line number?

Lekraj: Excellent. So, we're getting closer to more of a normalized recovery level. I know I say that a lot, but we are inching towards that number of about 200 to 250 on the private sector level, which is what we need.

When you take a look at the report, again there wasn't any huge weakness. There were some categories that are flat, but most categories were slightly positive to very positive.

Stipp: Bob, not only this number looked good, but they also revised prior months, in some cases pretty significantly. What do those revisions say? How big were they?

Johnson: The revisions have been large, and they have been for a while. When you get an improving economy, that's what tends to happen--you revise the past numbers up. When you are in a declining economy, it works the other way around. So, there are things that get missed, and as you actually count the numbers, it does a little bit better than trend, and that's why this happen. So, it's not atypical.

But one of the [revisions] that's interesting to highlight is the August report, which is always a terrible report, and we always have egg on our face because we are usually fairly optimistic on it, and the numbers usually turn out pretty crappy.

There were about 96,000 jobs added in August in the original report. That number has now been revised twice, in two steps of about 50,000 each. And now the August report says we added 192,000 jobs during the month of August. So, that's why you've got to be so careful looking at the month-to-month numbers.

And, by the way, the year-over-year, three-month moving average basis--it sounds so boring; it is just that, boring. We have had five months in a row where that number has been up 1.8%, and I think 10 of the last 15 reports have been up 1.8%. So, I think, these people who say, oh, it's a volatile economy, all the ups and downs. What do I do? You look at the data on any reasonable basis, and we are at a steady state of about 1.8% employment growth.

Stipp: So take out some of that noise, we're seeing not gangbusters, but pretty steady growth in employment.

Vishnu, let's look underlying the top line and see what some of the drivers were. We mentioned in our preview report that health care was potentially an area of concern. It turned out to be stronger than expected. What was driving health care?

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