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Will Jobs Disappoint Again?

Jason Stipp

Jason Stipp: I'm Jason Stipp with Morningstar. The government releases its closely watched employment data tomorrow, and will we finally see some growth? Here to offer me their take on that, and also some trends in the employment sector, are Morningstar's Bob Johnson. He's associate director of economic analysis. And Vishnu Lekraj, he's an analyst covering the employment companies. Thanks so much for joining me again, guys.

Bob Johnson: Great to be here.

Vishnu Lekraj: Thanks for having us.

Stipp: Before we start and sort of dig in with your expectations, there are some revisions that are going to be taking place with the data tomorrow that may affect some of the longer-term numbers. Bob, can you explain a little bit about what's going on there?

Johnson: Absolutely. Once a year, they go through, and the BLS looks at the numbers and recalculates the job losses. They do this by looking at old tax records. So they go back literally one year. They're going to look at the numbers ending in March, April 2009, and compare the tax records.

They've already made some preliminary indications. They think the job losses will be as much as 800,000 more than we had previously thought this recession. So if we had been at 7.2 million job losses before, now we're probably going to look close to eight million job losses. So, it's a big number.

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Stipp: We see that higher number, but it's something to be expected through the revisions and maybe something that people shouldn't be up in arms about.

Johnson: Right. We've already seen this kind of move through the numbers. Those job losses were why the consumer numbers were so bad a year ago. That's kind of in the past, but they will run headlines tomorrow that will look a little spooky.

Stipp: Sure. Now, some data that we got this morning, on productivity, it seems like a positive thing, but yet again, we see companies seem to be continuing to do more with less. What does that mean for the job market? Because we're so much more productive now, are we going to see a lot of pressure on the recovery for jobs?

Johnson: Sure. Productivity is a good thing, long-term. Don't get me wrong. It's always a very good thing. It makes us more competitive in world markets. It means we can focus our resources on other things. Productivity is a really fine thing. It makes us look better in the world.

In the short run, however, it does displace jobs. It's going to make the recovery a little bit slower, when we have that high productivity level. I do wonder a little bit, did things kind of snap and get a breaking point where people have said, "Well, I'm going to do a little bit more."

But when the corporate profits turn up and whatever, people say, "You know what, share the wealth a little bit here." I think we're probably getting to the point where people are getting a little resistant to doing more for less.

Stipp: Sure. Vishnu, how do you look at productivity, when you're looking at the numbers?

Lekraj: I look at it more of a longer-term trend. Over the long term, you're going to see a slow recovery within the goods-producing sector, because there's so much productivity within that sector. That's going to lead to more job growth in the service sector.

But it takes time for folks to migrate from the goods-producing sector to service sector. I think education, have to get new skills, and whatnot. That's why you see some reports coming out stating that the unemployment rate may be at elevated levels here over the next 10 years, 10-plus.

Stipp: You've looked at some recent trends among the employment companies that also speak to this trend of moving from goods to services. So what did you see there?

Lekraj: What solidifies that thesis is that a lot of the staffing agencies have been buying up smaller professional staffers. That market is more higher margin and, additionally, they believe that that sector is going to grow a lot faster that what the goods-producing sector has. To anticipate that, they've been buying up these smaller professional staffers.

Stipp: Interesting. Also, in the ADP numbers, you drew out some interesting conclusions about who's leading us out of this recession, on the jobs front. So what did you see there?

Lekraj: We had positive growth out of the medium-sized business, within the service sector. What this probably says is that these guys are high growth and they have available funds to borrow and to use. The small businesses, there's been stories and anecdotal evidence that they haven't been getting as much funding, and it's hard for them to borrow right now.

Big businesses, or large businesses, are hesitant to spend at the moment. The budgets haven't kicked in yet, and they're just really cautious at the moment. So, you're seeing the medium-sized businesses here lead us out of this recession right now.

Stipp: Traditionally, it was the smaller businesses [that led the jobs recovery]. Because of all the credit problems that we've seen, it's the medium business that's really a sweet spot for employment right now, potentially.

Lekraj: Correct.

Stipp: Interesting. All right, guys, turning to tomorrow, I always ask you what your expectations are. I think there's a little bit of gloom about the job market, because the initial claims this morning weren't as what people expected. It was worse than people expected. What do you think is going to affect the numbers tomorrow? And what's your take on the headline number, Bob?

Johnson: Sure. I've been bullish, because I think for some time the economy's been improving. It's slowly, glacially, the initial claims have been getting better, if you look at a longer run average of them. I'm looking for growth tomorrow of probably 30,000 to 50,000.

However, the numbers are really volatile. There's a lot of different factors. If the number was minus 100,000 or plus 100,000, I don't think it makes a big difference in the scheme of things. We've brought the number way down from job losses of well over 700,000 and, maybe when they're restated, even more than that.

We've made a huge improvement. Whether the number ends a little bit one way or another, it's psychologically important to see that. A growth number would get people excited, but in the giant scheme of things, it doesn't mean a lot.

I'm so much more excited about different things that I'm seeing, like the retail sales numbers looking better than people expected this morning, the productivity growth that we've been talking about. The corporate reports, this week, have been unbelievable. Cisco said this is all over. Things are wonderful, and it's across the board.

Stipp: That's really laying the groundwork for recovery later on, even though we might not be seeing that in tomorrow's numbers.

Johnson: Right, and tomorrow's numbers, frankly, might be impacted a little bit, too, from construction numbers. We've have some cold, dicey, winter weather. We've had some housing credit issues interfere with the housing starts.

So there's a bunch of funky things, especially on the construction side of the numbers tomorrow. If the numbers are bad tomorrow, that's where I would look first.

Stipp: Vishnu, do you think we're going to see some growth tomorrow?

Lekraj: We may, but I believe we're going to see a little bit of a down number tomorrow. Not a huge down number, but maybe 40,000 down. Now that again, that's not anything to be worried about.

Like Bob said, I heard a lot of these staffers, or a lot of these employment services firms, over the last week, be really, really positive. And it wasn't a song and dance. I believe they actually felt it.

We may be a little bit down this month. We may be a little bit down next month. But again, like I said before, we're going to see some slow growth. This is just on that path.

Stipp: All right, guys. Well, we'll check back in with you tomorrow when the numbers come in. We'll try to remember to sort of keep our eyes a little bit further down the line for a hopeful recovery in the job market. Thanks so much for joining me.

Lekraj: Thank you.

Johnson: Thank you.

Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.