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By Jeremy Glaser and Robert Johnson, CFA | 03-08-2013 09:00 AM

When Will the Fed Take Its Foot Off the Accelerator?

February's better-than-expected jobs report highlights the possibility that the Fed could end its expansionary policy as soon as this year, says Morningstar's Bob Johnson.

Jeremy Glaser: For Morningstar, I am Jeremy Glaser. It seems like the expiration of the payroll tax cut didn't do much to discourage employers from hiring with February's better-than-expected 236,000 jobs added. I am here with Bob Johnson. He is the director of economic analysis at Morningstar. We're going to look at what's behind those numbers. Bob, thanks for joining me.

Bob Johnson: Great to be here today.

Glaser: So, let's see what's driving? What sectors were really hiring that gave us this better-than-expected report?

Johnson: Well, there were a couple of sectors that were particularly strong, and of course, the one I always like to focus on is construction. The government report has been slow to pick up on the pickup in construction, I think. Housing starts have gone from 500,000 to almost 1 million units, but we've seen almost no growth in the employment in construction. And that just didn't jibe well. This month we had an unusually strong report from construction, up 48,000 jobs, which I think is probably the best number of the recovery from the construction side of the house. So that was really good news and one of the stronger sectors.

The temporary help and the business services categories also did well. Anything related to apartments was up, whether you're servicing the apartment, collecting the trash from the apartments, renting out the apartment--any of those categories, which are spread amongst the bunch of little, things really did very well and was a substantial contributor to the number. So those were really the sectors that were very strong, but almost every sector was up.

Now you had a few that were just little softer than trend. I mean, retail was up, and up nicely, but not quite as good as some of the good months we've had recently. Leisure, probably the same thing, up nicely, but not as strong as it had been. The only really down category is kind of the flip side of an economic recovery; the education sector was down and lost a considerable number of jobs, as it has for a couple of months here in a row.

What happens there is that people, when they don't have a job, one of their alternatives is to go back to school to get retrained. Then as the economy picks up, you have fewer people going back to school and more people going directly into the workforce. So that was the one number, but it is probably as one might expect in an improving economy.

Glaser: How about government employment?

Johnson: Yes, government continues to be a real laggard. We lost 10,000 jobs in government. Again, mainly on a state and local government level, which kind of surprised me. I knew bad things might happen on the federal level, which it’d actually didn't; [federal employment] was flat. But we lost jobs on the state and local level, again, which is surprising given that the tax revenues are finally going up again at the state and local level. And I thought maybe we'd see a break in that number, and at least break even on government employment this month. But again, we lost 10,000 jobs. Now we've lost, since the recovery began, 600,000 jobs in government. I mean, that's just kind of an amazing number. I don't think we ever lost that many government jobs even in a recession. So, that's probably one of the biggest surprises and one of the biggest things that probably held back the recovery. Usually, government accounts for about 12% of all job gains in a recovery. This year, it's more like a minus 12%, which is really a shocker.

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