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By Jason Stipp | 11-08-2013 10:00 AM

U.S. Job Growth Has a Quality Problem

A proliferation of lower-paying jobs with less financial security could have structural ripple effects on the U.S. employment market, says Morningstar Investment Management's Francisco Torralba.

Note to viewers: Morningstar director of economic analysis Bob Johnson is traveling today. His weekly column will be posted on Saturday, Nov. 9, as usual.

Jason Stipp: I'm Jason Stipp for Morningstar.

We got the government's employment report for the month of October, and it surprised just about everyone, showing 204,000 jobs were added, in addition to revising upward the August and the September job report growth.

Here to offer his insights on the October report and sitting in for Bob Johnson is Francisco Torralba. He is an economist with Morningstar's Investment Management division.

Thanks for joining me, Francisco.

Francisco Torralba: Thank you for having me here.

Stipp: We did see 204,000 jobs were added in October, and this is above the average for the last 12 months, which is 190,000. This also [happened] during a month where there were some concerns [about] headwinds on the job market. So, this was much better than expected. After seeing this report, though, and the revisions to August and September, would you say the job market is stronger than you thought it was before this report?

Torralba: Yes, it is stronger than I thought it was. If you look at the last three months of data--August, September, and October--we have seen an increase in average payrolls. The unemployment rate has been going down, although not necessarily for the right reasons, but it's been going down. It does dispel some of the fears that we had that the [government] shutdown and the impending possible default that we had in October were going to have an effect on payroll creation in the private sector as well.

So, overall, what we've seen is that the shutdown and the mini-default crisis we had in October had a very minimal impact on payrolls.

And due to the way that the unemployment rate is constructed, [the furlough] ended up having a very small effect on the unemployment rate, because basically all those people who were not working also reported not being in the labor force. So the two sort of canceled each other, and you had a very small impact on unemployment, which should be reversed anyway in November.

Stipp: The actual payroll report, the establishment data, was not affected by the shutdown directly. But we can say that there probably was a lot of negative sentiment in the market in the month of October. Do you think if we hadn't had that government wrangling, that we might have seen more hiring in the private sector, just because folks were waiting to see what's going to happen with the default?

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