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By Jeremy Glaser and Robert Johnson, CFA | 06-07-2013 09:00 AM

Johnson: May Jobs Data a 'Goldilocks' Report

Last month's employment numbers showed a continued, steady improvement, but they weren't so strong that the Fed will feel forced to taper its easing programs, says Morningstar's Bob Johnson.

Jeremy Glaser: For Morningstar, I’m Jeremy Glaser. The U.S. economy added a slightly better-than-expected 175,000 jobs in May. I’m here with Bob Johnson, our director of economic analysis, to see if the U.S. economy can keep this pace up and what it could mean for the Fed’s quantitative easing programs.

Bob, thanks for joining me.

Bob Johnson: Great to be here today.

Glaser: So we’ve heard some talk of this as the Goldilocks report: It wasn't too fast, it wasn’t too slow. What do you think about it? What’s your general take on this report?

Johnson: At 175,000 jobs added, it was a very good report, and it was a so-called Goldilocks report because it wasn't so high, which I’d probably put at 200,000 or more jobs. It really would scare the people and the Fed into really restricting back the quantitative easing program. Yet, it wasn't something like below 100,000 that would indicate that the economy is really weaker than we thought. So it was kind of right down the middle. As you mentioned, it was right on expectations of what everybody was hoping for. There were no revisions in the report, and the number was relatively the same as the prior month. It doesn't get much more boring than this.

Glaser: So I know you often think that the monthly numbers are sometimes a little bit noisy and you take a look at some year-over-year data. Where are we standing on that front?

Johnson: There I like to look at as a percentage because it makes so much more sense to do that and takes out things like strikes and so forth and weather effects. Right now we're growing our private-sector employment payrolls about 1.9%. That was the same exact number as it was also in April and in March. So we’ve really locked in there, and if we go back to 2011, that number has been between 1.9% and 2.1%. So we've really got a nice, stable base here of growth in employment, and that's a very good thing.

Glaser: How about seasonal adjustments? Is that a big factor in month?

Johnson: Yeah, it is. We actually added over 900,000 jobs in the month, and then we took out a seasonal adjustment factor of about 730,000-740,000 jobs. So the raw number that we all see looks good, but what people feel out in the job market is that we added heck of a lot of jobs, 900,000 some jobs in the month of May.

Glaser: The unemployment rate did tick up to 7.6%. Is that maybe a signal that maybe the job market isn’t as strong as maybe some of the payroll numbers reflect?

Johnson: A great question, and what we had this time, as the unemployment rate, obviously, is made up of a number of people looking for work and those that actually found a job. One of the interesting things there is that 420,000 additional people began looking for work in the month of May, and that shows a little bit greater confidence in the labor markets. 

So that's a good thing, but the number of jobs added--now, keep in mind, this is an entirely different survey a calculated different way--but that survey said we added about 320,000 jobs. So if you’ve got 420,000 people coming into the force and only 320,000 of them finding a job, that's why the unemployment rate ticked up. But it’s because more people were looking for work, which is a number that's been a little bit worrisome for the past several months because that rate has gone down as there have been more baby boomers retiring now--their 401(k) accounts are up a little bit--and as people stay in school little bit longer. So those two factors have really depressed the rate over a period of time here, and we did see a pickup this month, which is I think welcome good news. By the way, it was just a little statistical rounding, too: The rate was 7.51% for April and 7.56% for May, and of course, one got rounded up and one got rounded down, so the gap at a tenth looks a little wider than one might guess.

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