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Job Growth Remarkably Steady, Frustratingly Slow

Jason Stipp
Robert Johnson, CFA

Jason Stipp: I'm Jason Stipp for Morningstar.

We got the government employment report for November on Friday, and despite concerns that Superstorm Sandy would really hurt the number, the figures came in better than expectations, with 146,000 jobs added to the economy. The unemployment rate ticked down a couple of [basis] points to 7.7%.

Here to talk about the numbers and what this report means for the strength of the employment market is Morningstar's Bob Johnson, our director of economic analysis. Thanks for joining me, Bob.

Bob Johnson: Great to be here.

Stipp: So, we talked about how Superstorm Sandy could really wreak havoc with the numbers. When we got the report this morning, and the government went out of its way to say, "Hey, the Superstorm didn't actually affect the numbers. We got the same number of surveys back that we normally get." What's your read on that?

Johnson: I think they probably did. I'm sure they are not lying about it. And I'm sure they said it was in normal parameters--that means they could have been a few short, but it means that people sent in the data like they were supposed to, so they could do their work on the data and do their analysis.

It didn't mean that the storm had zero impact on the jobs market. I still believe, as good as the report was at a 146,000, that if the weather had been better, it would have been even better than that number.

And the government wasn't saying that. The government said that they would have to wait another month to say what the weather impact was on the number of jobs when they got to break the data down by statistical areas and by state. Then they'll be able to tell a little bit more.

But what they said is they were able collect all the data, and it was relatively easy, and hence we got a decent report.

Stipp: So, unlike some other reports that we've seen, no manual adjustments to this report?

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Johnson: Well, I don't know if there is a little government gamesmanship going on, but the BEA who reported personal income a couple of weeks ago said that it was nearly impossible to gather the data, and that they had to manually adjust the numbers by a couple tenths of a percent--annualized to 2.4%--because they just couldn't find enough data. And it just seems absolutely comical that you've got one group saying that we couldn't get any data and the other group saying that this was a piece of cake.

Stipp: And the unemployment rate, I think, fell much more than economists expected to 7.7% from 7.9%. Was there anything unusual behind the unemployment rate?

Johnson: In the report, buried deep inside, you can look and they say the number of people who weren’t looking for work or couldn't find work because of weather, and that was over 300,000 people. It's more typically 50,000 or 100,000. So, it's a far bigger number than it usually is. And so that took away both the number of people looking for work and the number of people employed and therefore the rate was helped a little bit by that.

Stipp: So, we possibly could see that tailwind becomes more of a headwind in the future reports.

Johnson: That's correct.

Stipp: It could be temporary. Let's talk about some of the drivers of the job gains. Retail and temp came out as big ones. On the retail front, we thought some of that hiring might have already occurred, but it was still strong in November.

Johnson: We had a great November. I'm wondering if a part of that might have been related to the fact that everybody wanted to be open on Thanksgiving this year, and to get people staffed up for that. The [reporting period] happened to come just the week before [Thanksgiving], so perhaps we absolutely caught the peak timing for employment in the industry.

So, I'm afraid that's a number that may come back in at some point. It was a big adder. And it wasn't all retail [industries]. A lot of it was clothing, a lot of it was electronics. Some of the other areas weren't as strong.

Stipp: And what about on the temp side? What does that say about where we are with the job market?

Johnson: Well, it did do better, and that's usually a precursor to better things in other parts of the economy. It's been a little soft recently. So, I was glad to see that number look a little better. I'm wondering if maybe that's where some of the construction workers are turning up. They are hiring more of them as temps rather than as full-time employees at the homebuilders.

Stipp: Some folks might say a lot of retail jobs, they could be seasonal, they might be lower paying. On the flipside, we saw some weakness in some other areas that could be better-paying jobs, such as construction and manufacturing. What do you make of the job quality ratio that we're seeing as far as how much people might be taking home in paychecks for these jobs?

Johnson: Generally people prefer to see [job growth] on the manufacturing side, while the wages there aren't as big a gap from retail as they once were, I think.

And the hours worked and price per hour reports that were in this same report, they would indicate [if] it kind of moved the needle, like all of a sudden we've got all low paying jobs. On that basis, the numbers are relatively similar. So, it didn't hurt as much as one might expect, but the manufacturing numbers, especially on the non-durable side, were weak. We actually lost jobs, and the construction market was down yet again, which I don't quite know how they get to that conclusion.

Stipp: And that doesn't agree with ADP data that shows construction is up. So what's going on with construction?

Johnson: Well, it's a small group of folks, and they are in and out of business, and probably aren't the easiest to keep track of. And I think ADP even brags that they ask more firms about what their employment in construction is than the government does. So, I tend to believe the ADP number more than the government number, and certainly with housing starts nearly having doubled off the bottom, I'm still suspect of a government number that shows no growth in household construction.

Stipp: Another [piece of] interesting information we got in this report is that prior months were revised downwards. So, we had October's payrolls rising only 138,000 versus what they originally reported, which was 171,000, and September came down to 132,000 from 148,000. So, when you look at those downward revisions, it doesn't look that great, but then when you see the trend of the three months it looks like we're slowly moving upward a little bit.

Johnson: Yes.

Stipp: What do you make of that?

Johnson: Well, the trend overall is looking better on that front. It's got three up months in a row. If we look at just the private data, it's a little less that way. What happened is that many of the revisions, almost all of them, were in government jobs being revised downward for September and October. The private sector jobs actually in some categories went up from report to report.

So, I tend to put government off in a separate category. We can argue all day long whether government jobs are good jobs or not, but on the other hand, the private sector was unchanged, and the trend there is we had a very good October. November wasn't quite as good.

Stipp: We've had a lot of issues here with the employment market, a lot of concerns out there. We had the storm. We’ve got the fiscal cliff happening. Just a lot of worries that we are stuck in a slow growth mode or that we're potentially in for some trouble, but when you look at the data, try to take out all of these extra factors, what are you seeing as far as the fundamental health that we've got here?

Johnson: Well, you don't even have to do this special factors. For five months in a row, the job growth has been between 130,000 and 150,000 jobs added. It's been extremely consistent, not maybe as high as it was at the beginning of year, but it's been extremely consistent. And year-over-year growth in employment has been about 1.8% for five or six months in a row now, on a year-over-year basis, three-month moving average.

So, we've got a real set of consistency here, and when you've got job growth of about 1.8%, that usually means GDP growth of about a 0.5% higher or say 2.3%. So, the employment numbers are kind of agreeing with some of what the GDP numbers are saying. So, I think they are relatively consistent and correct, and I don't think we're going to bust out of this broadly in one direction or another. I think when companies need people like they have Thanksgiving sales, they hire them; and when companies have programs that need people, they hire them; and when they don't, they don't. And I think companies aren't saying, " I will hire extra people because I think the fiscal cliff is going to be solved" or "I think I'm going to keep less employment because of the uncertainty." I don't really think that's happening in a huge, massive way. When you really tear the numbers apart, it just looks flat.

Stipp: So, the good news is consistency. We're not seeing big declines. We're seeing steady growth in employment. The bad news is it's a slow growth rate that we're seeing?

Johnson: Now, we're at to the point on private sector where we've recovered about 5 million of the 8 million jobs lost. So, we're at five-eighths. Before we used to talk about recovering half; now we're kind of at about five-eighths.

Stipp: All right, Bob. Thanks for your insights on this interesting report. One that maybe wasn't as affected as we feared that it might have been, but still some interesting trends to pull out of there. Thanks for joining me today.

Johnson: Thank you.

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