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By Jason Stipp and Robert Johnson, CFA | 10-22-2013 09:00 AM

More Downside Than Upside in Current Job Market

Year-over-year employment growth remained steady even after September's lackluster gains, but fundamentals don't hold much upside in the near term, says Morningstar's Bob Johnson.

Jason Stipp: I'm Jason Stipp for Morningstar. We finally got the government employment report for the month of September on Tuesday. It showed that only 148,000 jobs were added to the economy.

Morningstar's Bob Johnson didn't expect a great report. He is here to share his insights on those numbers.

Thanks for joining me, Bob.

Bob Johnson: Great to be here.

Stipp: 148,000 was certainly less than consensus, which was around 180,000. You thought it was going to be lower than consensus, and it was even a bit lower than what you expected. So, what's your take on these numbers?

Johnson: Yes, they are soft numbers, and they were soft across many different categories. It wasn't one outlier. In fact, there are actually a few positive things in the report by category that are kind of unusual and may not recur.

I thought it was a slow report overall. But when I look at the data, I look at private-sector job growth year-over-year, and we are still at that 2% year-over-year growth rate, because last September was also a little bit soft. So, again, a soft number, but not a disaster.

Stipp: We also saw some volatility in the numbers recently, especially given some revisions that we saw in this report. The August data was revised to 193,000 from 169,000, and July was revised to 89,000 from 104,000. Can you even discern a trend in what's happening with the job market in the shorter term?

Johnson: That is why I like to use the three-month moving average, year-over-year, and that pattern has hung in there so far at that 2% level. And that's what I really watch.

If you wanted to do something on a shorter-term basis, there is a little bit of softness. If you wanted to look at, say, July-August-September versus April-May-June, then you are starting to see a pattern where you are closer to 200,000 jobs added in the earlier spring quarter, and the summer quarter looks like we are down to 120,000, 130,000, 140,000 jobs. So there is really a deceleration in that short-term data.

Stipp: As we look ahead to October, we should probably expect another pretty soft or bad month given the shutdown.

Johnson: Yes. I am a little bit afraid of that. You've got the government numbers themselves, but even if we toss those aside, I think some private industries said, I don't know what I am going to do, or [companies] that serve the government might have been a little weak. So it's hard to imagine that October is going to be an awful lot better than September, unfortunately.

Stipp: Let's dig under the data for this September report and look at some of the sectors. There were a few sectors that looked pretty good. Construction was one of those. So we are finally seeing some jobs there.

Johnson: It's a late catch-up, because remember early on we saw great growth in construction and no employment there. Now this time the [non-employment] construction [data] is not doing so hot, and all of a sudden we have added 20,000 construction workers--but at least we added them. That's good news for the economy. And it was the strongest that we've seen in some time. That's a big number.

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