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Job Market Getting Back to Work

Jason Stipp

Jason Stipp: I'm Jason Stipp with Morningstar. The government released its unemployment rate for August. It did tick up to 9.7%, with 216,000 jobs lost, what some may characterize as a mixed-bag report from the government. But we're going to dig behind those numbers today.

Joining me is Bob Johnson, he's Morningstar's associate director of economic analysis, and Vishnu Lekraj, he covers the employment sector for Morningstar. Thanks for joining me again, guys.

Bob Johnson: Thanks.

Vishnu Lekraj: Thanks.

Stipp: OK. So we've been seeing a trend that's a positive trend in the number of jobs lost over the last few months. In June, we saw 463,000 jobs lost was the revised number; July, 276,000; and then 216,000 for August, which is a direction that we'd like to see as far as the job losses go. But the unemployment rate did tick up, from 9.4 to 9.7%. So what's behind that difference? It seems like they should move in the same direction, but they're not. What's behind that, Bob?

Johnson: On the unemployment situation, one of the things that always happens, employment's a real lagging indicator. One of the reasons is because as the job market actually starts to get better, people that were discouraged that may have gone back to school may have said, "You know what? I'm staying home with the kids for a while," decide that the market looks better and start looking for work. And so that increases the unemployed number and increases the rate artificially.

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And it happens every time at the end of the recession. ... The initial claims go down, and you see more jobs created. But you see more unemployed. And the reason is that more people are confident enough to look for a job. Last month I was really discouraged when the number of people looking for jobs went way down, because that's a bad sign, and these people aren't hopeful. This is great news.

Stipp: So what we're seeing then is there are more people out there looking and maybe they haven't found yet, but that's why the rate ticked up. So is the rate within your expectations, Vishnu? Is your data saying that same thing?

Lekraj: Right. When we look back at our forecast from earlier this year, and probably before, we were expecting 10% plus. So it's on par with what we expected.

One other point on that is that the reason why we have two different, diverging views with both of these data points is that they're from two different survey sets. You're calling people for the unemployment rate, and you're talking to businesses for the payroll data. So you can always get two different results from two different surveys, just by statistics. So that's probably what we're seeing here.

Stipp: OK, guys. So looking at the job losses across the market and the different sectors, some have obviously been hit worse than others. And perhaps some look a little more promising today, as far as the recovery goes, than others. So what are you seeing, sector by sector? What's looking really bad, and what seems to be a little bit better? And are we going to see some differences, structural differences, as the job market recovers, and maybe some won't gain jobs back and others will gain more?

Lekraj: Well, the manufacturing sector was ticking up a good amount. Losses there were slowing on a month-to-month basis at a good clip. This month, it ticked down. On a structural level, I believe that's going to be one of the industries that's going to be impaired going forward. Also, construction. At the peak, we had a huge amount of jobs pushed into the economy because of the construction market. That's been impaired.

This month, though, I think what surprised myself and what surprised Bob was the federal government actually let people go, along with the states and local government. And when there's a recession, you want the government to be active and give people jobs, and that hasn't happened this month.

Stipp: Do you think that there are any sectors that might actually recover a little bit more, or that might have more promising prospects, that could maybe suck up some of those jobs that are lost in manufacturing?

Lekraj: Oh, definitely. So if you look at construction and manufacturing being impaired, you'll probably have a pickup in education and health services. Also, financial services are going to be impaired a little bit, I believe, going forward, structurally. But again, education, health care probably will pick up some of that slack.

Stipp: OK. Bob, what's your take on these manufacturing jobs? Are they gone for good?

Johnson: No. I'm a little bit more optimistic on the manufacturing and construction sectors a little bit. We have been in a little bit of a secular decline in manufacturing. Even before we hit the recession, we were losing jobs on that sector. But, in housing in particular, we've gone from something like 2.2 million starts down to half a million starts. So if we come back to even a million and a half starts, we have the potential to rather dramatically increase the number of jobs in that sector.

Now, it won't come the next six months. It probably won't come in the next year. But over the next three years, I think we've got a nice chance to kind of build out some of our construction numbers. And those will come back, and I think they'll come back a little bit slowly.

And that's good news and bad news. I think it means that we may have less subject to a W, where we have this big spike and the falloff, because it's going to take a while for people to get confident enough to buy houses again. And as they do, I think it's going to keep adding and adding each month, not be a colossal one-time up and one-time down.