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By Jeremy Glaser and Robert Johnson, CFA | 03-06-2013 12:00 PM

Will the Payroll Tax Derail Job Growth?

Friday's job report is unlikely to show that the payroll tax-cut expiration has thrown off the job market's slow but steady recovery, says Morningstar's Bob Johnson.

Jeremy Glaser: For Morningstar, I am Jeremy Glaser. The Dow Jones Industrial Average reclaimed its precrisis highs this week, but employment still remains well below precrisis levels. I'm here to today with Bob Johnson, Morningstar's director of economic analysis, to get a preview of Friday's job report.

Bob, thanks for joining me today.

Bob Johnson: Great to be here.

Glaser: So, there have been a lot of market watchers that are anxiously awaiting this report on Friday. Why is this being so focused on?

Johnson: You know the reason it's particularly important this time in a lot of people's minds is that we had the payroll tax increase, and it started to slow retail sales just a little bit. And I think everybody is very concerned that it's spilled over into the payroll data. Will employment be down or will it kind of continue on a slow improvement that we've been on for the past year and half?

Glaser: We did get some data from ADP and some other sources. Has any of that shown that we're seeing that slowdown, that employers really are pulling back in the face of these tax increases?

Johnson: You know we really haven't seen it. The ADP report that came out on Wednesday was really quite favorable, showing a 192,000 private-sector jobs added. That's a relatively high number over the past 12 months or so, so we're pleased with that. It may not be the strongest of the last four months, but it was certainly still a very good number and above expectations. And the report included substantial revisions for some of their earlier months in the report, so in that way the report was very positive. There were other aspects, too.

Glaser: What about initial unemployment claims?

Johnson: Well, on initial unemployment claims that's also been trending down. We've had a couple of really good weeks. Some of that's been holiday weeks, I'm afraid, but still the four-week moving average has generally trended down, which would tend to indicate that maybe the employment report would be better than it has been the last couple of months. So, at least we should be stable in terms of employment rates.

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