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By Jason Stipp and Robert Johnson, CFA | 05-02-2014 12:00 AM

Curb Your Enthusiasm Over April Jobs

The employment report had its bright spots, but 288,000 is not the new normal for monthly job growth, says Morningstar's Bob Johnson.

Jason Stipp: I'm Jason Stipp for Morningstar.

The government employment report surprised almost everyone, showing that 288,000 jobs were added in the month of April. This was certainly above most folks' expectations, but is it for real?

Joining us to offer his take on the employment report is Bob Johnson, our director of economic analysis.

Bob, thanks for joining me.

Bob Johnson: It's great to be here today.

Stipp: We did have the best month since January 2012 with 288,000 jobs added. March and February were also revised up.

I think the question on investors' minds right now is, is this a bounce-back from weather-related and some other issues over the last couple of months, or are we seeing some real acceleration in the employment market?

Johnson: Well, there is probably just a little bit of acceleration in the market, but I think the majority of it is actually weather-related bounce-back, but that's fine. We moved the rate up slightly. Actually, when you look at the year-over-year average percentage growth rate in the total private sector employment, we're still at the same 2% that we've been at forever, and 1.7% on the nonfarm, which includes the government workers. So, clearly, when you look over the longer term, there is not a really sharp acceleration, although this number did take me by surprise, and it was a good number.

Stipp: You said there was consumption data that we got earlier that may also indicate that we're seeing some improvement?

Johnson: Yes. The consumption number has been like a straight line on a chart at 2% for three years running, and now the number is more up toward 2.5% in the latest report. There has been a little bit of acceleration there. Now some of that is related to fuel purchases this winter, which were kind of abnormal, and some of it is related to how the Affordable Care Act reimbursements were put through the system, but nevertheless there has probably been a slight uptick in consumption, which should mean a slight uptick in employment.

Stipp: April also tends to historically be a strong month. There is a big adjustment factor for April as well. How do you read that adjustment factor in light of the number that we got?

Johnson: April is always a little bit dicey because the seasonal adjustment number is just so huge compared to the baseline increase.

To give you an example, we actually added this April 1.1 million jobs, not the 288,000 that we all saw. We added 1.1 million jobs, and then took a seasonal adjustment factor of 800,000. And you all know what I think of the seasonal adjustment factors. They aren't the most accurate thing in the world. If you hit them within 10%-20%, you're doing a darn good job. So the margin of error on the seasonal adjustment is larger than the actual employment number was.

So, you've got to be careful not to read too much into the April number. April, for one reason or other, in raw numbers, is always the best month of the year. Maybe it's because we're warming up for summer and everybody is gearing up, but it is usually the best month of the year.

Stipp: So, we've got a big seasonal adjustment factor. We probably have some bounce-back from bad weather earlier in the year. Let's take some of that noise out and say, if we were just having a regular employment market over the last few months, what do you think the actual real number is that we should see here?

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