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When Do Jobs Come Back?

Jason Stipp

Jason Stipp: I'm Jason Stipp, site editor for Morningstar.com. On the heels of a nice runup in the stock market over the last few weeks, labor department comes out on Friday and tells us that 663,000 more jobs were lost in March, unemployment hits 8.5 percent.

Here with me to sort through and put some of these numbers into an economic context is Bob Johnson. He is Morningstar's associate director of economic analysis. Bob, thank for joining me.

Bob Johnson: Nice to be here.

Jason Stipp: So, Bob, 8.5 percent unemployment, 663,000 there were some revisions in the numbers as well. What's your top-line take on those rates, those numbers and the rate of decline?

Bob Johnson: Sure. I think the first thing to focus on is the revisions. There was a big revision in the January number showing that we lost well over 700,000 jobs in January. And that number dipped into the 600,000s in February and basically stabilized again in the month of March.

So, the nice thing is the trend is positive. We've kind of stabilized the numbers. The bad news is that January was a lot worse than anybody really thought it was.

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Jason Stipp: So, the silver lining is that the state of decline is stabilizing, it's not really going faster and in the wrong direction.

Bob Johnson: Absolutely. And there's a number I mean, you look across many sectors and the rate is improving. Frankly, the only one that is getting a lot worse is the government sector, which has been a thing holding the market up a little bit and that was actually down just a tinge this month.

Jason Stipp: So, speaking of the sectors: where are you seeing the worst hits and on a relative basis, what is holding up, what's doing badly?

Bob Johnson: Well it's interesting. What's really hurt in this recession is the whole goods producing part of the economy. That's the producing, that's manufacturing cars, it's sewing clothes, it's mining things, it's constructing buildings both residential and business.

And those sectors only provide about 15 percent of our jobs, Jason. So, not a lot, 15 percent, but they've accounted for, since the beginning of the recession, more than 50 percent of the job losses. So, to a lot people this may not feel like a recession, but if you work in anything that is kind of manufacturing related, you felt a lot of pain.

So, on the other hand, if you look at some of the service producing industries they may be down again, not pleasant but they're down in the four percent range, certainly not nearly as bad as where on the manufacturing side of the house.

Jason Stipp: So overall, a disproportionate amount of the pain is being felt in those sectors. But I think, generally, unemployment, the job situation, is weighing on consumers.

Normally you think and generally what we've seen in the past is that unemployment is a lagging indicator. But, with the consumer as such a big part of the economy and with them in sort of a funk over the job situation, do you think that's going to hold true? Do you think that we're still going to see the market improving before the job situation gets back online?

Bob Johnson: I think that people get a little bit focused on the job thing and get scared and it becomes a circular logic. Well, gets worse, production gets worse, and unemployment gets worse. It kind of keeps feeding on itself.

In reality, what I think happens is you can't look just at unemployed people without jobs, I think 90 plus percentage of people have a job and how those people feel confidence wise is important. How much those people are getting paid and the nominal wage was actually up again this last month according to this same report.

So, there're a lot of things that are actually OK in the report in terms of how people are doing. And I think that's going to be critical going forward; rather than just focusing on the unemployment rate and the job loss.

For example, the unemployment rate, typically... If the recession ended today, it would be eight months before unemployment would peak. So, we've got a number of months left where things get worse.

Jason Stipp: Yeah, we can still see some decline over that time. Meanwhile, behind the scenes, some other things may be having a positive effect.

Bob Johnson: Correct.

Jason Stipp: OK, so what can we look at then to get a better sense as a leading indicator? What are you looking at and what is that telling you about where we are right now in the downturn?

Bob Johnson: One of my favorites is the Institute of Supply Management at the end of every month. So, it's just a data roll that's put out some numbers relative to the manufacturing company, which I mentioned is the weakest part of our economy right now. And they're actually showing some pretty dramatic improvement off a very nasty kind of bottom: January, February, March, have all shown some improvement in the new orders seen by purchasing managers.

So, that's a really big positive. And that typically leads the economy by four, five months; some improvement in that number. So, if that number bottomed in January, we may actually be getting pretty near to a bottom in the economy.

So, that's what I feel is one of the better indicators out there. Certainly, there is one employment number, if you're going to look at one, pay attention on Thursday, every Thursday, when the initial unemployment claims come out. That's the one number in employment that's a little bit of a leading indicator.

Unfortunately that number is still going down slightly. It's stabilizing, but we haven't seen improvement in that number before the economy bottoms. We just haven't seen that one yet and that tends to lead just by a couple months. So once it goes, you don't have a lot of time to react.

But, that one is the one. I come in every Thursday biting my nails about what's going to happen.

Jason Stipp: Well, we'll hope to see some improvement in some of those leading indicators, continued improvement perhaps. Thanks for the context Bob. I'm Jason Stipp from Morningstar. Thanks for watching.

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