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By Jeremy Glaser and Robert Johnson, CFA | 07-30-2014 11:00 AM

Johnson: Expect Steady, But Unspectacular Jobs Growth

With economic growth stuck at 2%, jobs growth in July will likely slow from June’s upbeat number to something closer to the 12-month average, says Morningstar’s Bob Johnson.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. It's been a busy week for economic data with GDP and also the jobs report due on Friday. I'm here today with Bob Johnson--he's our director of economic analysis--to get his take on some of this data and also a preview of Friday's jobs report. Bob, thanks for joining me today.

Bob Johnson: Thank you.

Glaser: Let's start with the ADP employment number that came out on Wednesday. It showed 218,000 jobs added in the private sector. What does this look like compared to some of the numbers we've been seeing recently?

Johnson: The ADP number for the previous month was about 280,000. The government report for June was 288,000. So, this number would represent a little bit of a slowdown from that. Frankly, that 200,000-range is about the average that we've seen over the last 12 months, so the 288,000 [from June] seems like a real outlier to me. It seems like that number maybe revised down, and maybe this month's number won't be quite as good; but again, we tend to see the bigger adjustments in August rather than in July. We'll have to wait and see on that, though.

Glaser: Looking across the size of businesses, who is adding jobs in this month?

Johnson: There are a couple of different ways to look at it. I think that the small, medium, and large split was probably pretty good. Middle-range corporations were actually the strongest. Small businesses did almost as well, and large [businesses] added fewer--but again, that's a very small percentage of the businesses. So overall, it's a pretty balanced report by size, which is always good to see because you don't want [job growth] to be driven just by one sector.

By individual market segment, most of them were down from the previous month. I didn't see anything that really jumped out at me by sector. Maybe the one that did was manufacturing, where there were 3,000 jobs added. I've seen quite a few things that suggest manufacturing is picking up a bit, so I was a little surprised that number wasn't a bit higher. But that was about the only number that really jumped out by sector. The professional and business services sector had been really strong. But on the graph, it looks like that fell off quite a bit as well.

Glaser: As we look forward to that Friday report, what are you expecting? Do you think that growth will slow down from that previous month's level?

Johnson: There are a couple of combating forces here. I'm going to go with a relatively low number and say plus 200,000, which has kind of been the average. We saw the GDP report for the second quarter, and it suggested 4% growth in the second quarter and minus 2% in the first, so you kind of average out to 2%. That's been the average over the last three years. So really, employment shouldn't go up much more than, on average, about a couple hundred thousand per month and to have one month at 288,000 suggests that the next month's number should be lower.

So, I'm going to go with a low number at 200,000, but we may get there a different way. Maybe the number for June gets reduced sharply downward, and this number doesn't look quite so bad. But I think there's room for that number to fall back a little bit this month, and I wouldn’t worry about that at all. The economic growth that I'm forecasting and seeing right now suggests about 2% growth in the private labor force, and that represents about 200,000 jobs.

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