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By Jeremy Glaser and Robert Johnson, CFA | 04-30-2014 11:00 AM

Signs Pointing to Better Jobs Report

Recent data are suggesting slightly improving employment conditions, which bodes well for the April report, says Morningstar's Bob Johnson.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. On Friday, we're going to get the April jobs report. I'm here with Bob Johnson, our director of economic analysis, for his expectations.

Bob, thanks for joining me.

Bob Johnson: Great to be here today.

Glaser: Let's actually start with the GDP data. It came out at 0.10%, much lower than consensus. Does that reading make you a little bit nervous about some of the other data, mainly that payroll report that that we're expecting?

Johnson: No, and that's an excellent point. Obviously, the GDP data is a little bit dated, it only goes through March, and the jobs report we'll get will be for April. So, clearly, we kind of moved past that. There was probably a little impact on the GDP report from weather, and there were things like exports and inventories that really don't change the basic tenor of how businesses are hiring and how many people are employed. I think I'd view those numbers as separate, and I think the GDP numbers are really volatile. We had a 4% GDP number but kind of 2% employment growth and, I think, probably we're going to have 0% GDP growth and 2% employment growth. I think the GDP numbers kind of probably need to recalibrate themselves a little bit. It was a disappointing number, and I don't think it was all weather. I think weather actually may have helped an awful lot of categories in the GDP report. And it hurt a few, too, but I don't think it was all about the weather.

Glaser: ADP said that 220,000 private-sector jobs were added, a little bit more than they had in March. What's your take on the report? Does that, again, bode well for what the month looks like?

Johnson: The ADP report gives us at least some indications of the direction of the government report, but they're based on different metrics and calculated in a different way. So, it's not as great a leading indicator as one might hope with only two days' difference between the reports.

But that said, it's good to see that it's not falling out of bed or it's not some wild, crazy-high number either. I think it's right down the middle, and I think at 220,000, which is also by the way the consensus estimate for the government report on Friday, the official one, I think that probably bodes well for the [government] number. And it's above the government's report of the 12-month average of 193,000 jobs added. So, certainly there's a little bit better news there.

Glaser: Looking into the report a bit, what were some in the mix? Was it small businesses hiring and large businesses in the middle?

Johnson: What was nice about this report and why a lot of people view this as quite a positive report and why it offset some of what we saw in the GDP report was it was a very balanced set of numbers. Small, medium and large businesses all added employees and all added at a relatively healthy rate. Particularly important, the midsized businesses which had been a little slower added a nice number of jobs in the period. So, that's kind of out of its little slump and we're glad to see that.

Glaser: Across sectors, who is adding jobs and who looks a little bit weaker?

Johnson: The good news there, as it has been in the last couple of months, has been construction. That's probably with the weather getting a little bit better, though we certainly aren't seeing the housing starts numbers just yet or the architectural-billing numbers. But they did say we added 19,000 construction jobs. I do think that's probably a little bit high, and we probably won't see that number on Friday. That's one area where we might be a little bit lower than what they thought.

On the other hand, if the surprise on the upside was probably construction, the downside surprise there was probably manufacturing where we basically didn't add any jobs.  We added 1,000 jobs, which is probably consistent with there being just a little bit of a slowing in manufacturing, and the auto guys pulling back just a little bit. We'll see what happens on Friday, but that's the manufacturing number.

The third number I'd point to which is important is business and professional services, which has been one of the key elements of growth over the last year in both of the reports, and they added 77,000 jobs, which is considerably above the recent averages. And that's good news, and they are good-paying jobs with relatively high hours. The bad news is that many of them are temporary jobs.

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