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By Jason Stipp and Robert Johnson, CFA | 07-31-2013 12:00 PM

A Few Possible Pitfalls for the July Jobs Report

Morningstar's Bob Johnson is expecting about 175,000 new jobs in Friday's report, but a negative retail surprise or correction from recent strong months is not out of the question.

Jason Stipp: I'm Jason Stipp for Morningstar.

We got ADP's employment data for the month of July on Wednesday. It showed a solid 200,000 private-sector jobs were added to the economy. What might this mean for Friday's government report? Here to offer his insights is Morningstar's Bob Johnson, our director of economic analysis.

Thanks for being here, Bob.

Bob Johnson: Great to be here.

Stipp: What's your take on that top-line number of 200,000? It was better than analyst expectations. It pretty closely matched June's number after they revised June's number. We've gotten about 200,000 in each month.

Johnson: Yes. I think it was a relatively good number… The numbers have been a little bit better than expectations for a few months, and [we all thought] that maybe this number would back off just a little bit, but lo and behold, we had continued strong job growth, according to ADP data.

Stipp: And it looks relatively broad-based. There wasn't, for example, any areas that caused all of the increase. What's your sense on the underlying [drivers]?

Johnson: One of the things I always look at is the mix of small, medium and large businesses, and each of them were pretty strong contributors. Sometimes small business grows a little bit faster; sometimes if it's more internally U.S.-driven than export-driven, small business will do better. Other times when people are really scared, there's no money to be had, large businesses will do better than small, and you get this phenomenon where one does good, but it's offset by the other. This time, all three categories looked quite strong, with almost equal contributions in raw numbers from each of them, with small business being the largest [contributor].

Stipp: A couple of notable positive numbers: construction had 22,000 jobs added. Is this related to some of the housing recovery that we're seeing?

Johnson: I think so, and I've felt for some time that the construction numbers are being relatively underreported from both the government and ADP, because we've seen decent growth in housing starts. We've seen in this most recent GDP report, more than I thought, more construction growth, and that should lead to employment growth. So that 22,000 makes sense to me, and that's a relatively strong number compared to what it usually is. That really didn't start improving until about a year ago. So I'm hopeful that brings more jobs in the future.

Stipp: The ADP category "trade, transportation and utilities," which would include retail, added 45,000 [jobs], one of the biggest industry contributors in the ADP report. Yet retail isn't looking particularly robust. Is this number questionable?

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