Jason Stipp: I'm Jason Stipp for Morningstar. We got ADP employment data for the private sector for the month of September on Wednesday. It showed 166,000 jobs were added to the economy. This on a week when the government shutdown means we won't see a government employment report for September, but here to offer his take on the data we do have is Morningstar’s Bob Johnson, our director of economic analysis. Thanks for joining me, Bob.
Bob Johnson: Great to be here today.
Stipp: We did get the ADP report. We’re probably not going to see a government report due to the shutdown, but let’s talk about the data that we do have; 166,000 private-sector jobs added is very flat based on the trends we’ve seen over last few months.
Johnson: It's really lethargic. I mean, we’ve kind of now got July, August, and September all at the same number, at about 160,000 or so, and that's down from the 190,000, according to ADP, that we saw in June. We kind of stepped down and kind of stayed at that depressed level. Fortunately, that probably means the slow job report that we saw for August from the government, was likely not an accident, that we will probably see yet another month of relatively slow job growth, if the number ever sees the light of day from the government.
Stipp: Some economists were expecting a better report for September. What was behind some of that optimism?
Johnson: Well, on the ADP number, first of all, the consensus estimate was 180,000 private-sector jobs, and we got 166,000. Obviously, it was a disappointing number overall from ADP. I think in terms of the pluses and minuses for what people looked at, this was probably perhaps one of the more controversial forecasts that were out there or the most divergent. I mean, I saw numbers as low as 160,000 and as high as 220,000 for the official government number, if it were to come out on Friday. The bullish camp was very excited about data from the purchasing managers’ surveys from the Institute of Supply Management, which suggested decent employment and overall growth in manufacturing. That was a reason for optimism. The low initial unemployment claims which are at a recovery low, really got people excited that we might see some dramatic improvement in the number. Those were probably the two bullish things in there. Then on the bearish side, there were a number of forces at work.
Stipp: If the manufacturing sentiment from the PMI was causing some optimism about the report, the number that we saw of manufacturing jobs added in the ADP report would not seem to comply with that?
Johnson: Yes. My worst nightmare has kind of come true. Somehow the ISM data--that's Institute for Supply Management, the purchasing managers’ surveys--have been incredibly optimistically lately and including some very bullish numbers on Monday. Yet, the ADP report Wednesday was a huge disappointment. It showed only 1,000 jobs added for the whole manufacturing sector, which is exceptionally disappointing knowing that the autos were doing pretty well. If you toss autos out of the mix, that must mean something did pretty badly even. So that was a reason for a great concern and certainly raises a little question about some of the purchasing managers’ data.
Stipp: What about the jobs that were added in the ADP report? What kind of jobs were we getting?
Johnson: Well, the biggest sectors that jumped were retail, trade, wholesale, and utilities; that combined category jumped 59,000 jobs. So that was the biggest growth category, and construction added 16,000. So those were probably the two big positives, and recall that in housing we had a really bad July and then kind of bounced back a little bit in August. And I think that's starting to filter through to some of the construction employment numbers. I think some of the business construction numbers that were so awful have definitely gotten better. We've seen the architectural billing and some of the other data get better. So I'm glad to see the construction data look better. On the other hand, the government version of the data usually doesn't pick up as many of those new construction jobs, unfortunately.
Stipp: Let's talk about some of the areas where we've seen weakness, and they tend to be better-paying jobs. Financial services is an area of weakness, so maybe that’s related to the higher interest rates we saw.
Johnson: Yes. We certainly have seen some issues in the financial-services industry. It didn't do as particularly well last month, and I think this month will be even worse. The ADP data showed the loss of 4,000 financial-services jobs. Again, I think some of that’s the mortgage processing. We've seen a number of major banks and mortgage companies that have announced huge layoffs, because now that rates have gone back up, there is less incentive to refinance your mortgage. Now, maybe rates come down here a little bit and they call some of those people back, but it's too late for this report. I think that certainly some of those mortgage-processor jobs could be a relatively major factor in some of the data. Then on top of that we're seeing news now that some of the trading volumes, especially in bonds and so forth, is slowing up a little bit, and that all may affect the financial-services sector. So it's never been a huge grower, but it looks like that one may be going in reverse on us.
Stipp: The government shutdown, of course, would potentially affect the October report if it continues, but what about September? Do you think that government will be kind of a neutral factor like it was the months before? Do you think the government might have subtracted jobs in September?
Johnson: The federal government number of jobs actually got a little better in the month of August. With the worst of the sequester kicking in and people realizing it’s for real and getting up against deadlines, I’ve got to think that some of the federal government jobs don't look as good in September. So I think that would be another potential hurt for this report.
Stipp: For all in intents and purposes we're not going to see a report for Friday from the government. But what's your overall sense, given some of this data that we're losing some good-paying jobs? The jobs we are adding might not be the best jobs, that we've seen flat ADP data for the last few months. What's your overall sense right now, absent government data that we may not see for September, of the health of the job market? Now we have even more headwinds potentially.
Johnson: I am a little bit worried, and I have been probably a little bit too early and for too long. But I have certainly looked at some of the retail sales data on a weekly basis, and that number has been relatively consistently weak when I look at the International Council of Shopping Centers data. So I’ve had some ongoing concerns that we haven't got a strong economy. It's always been kind of mystifying when the Fed says they’re tapering because they're afraid the economy is about ready to launch into escape velocity. The data has never really supported that. I really think that with the ADP report that we've got, and if we saw the government report, it would show relatively lackluster economic growth. It's certainly not a disaster and certainly not falling back into the abyss. But relatively down in the middle. I think that's what the ADP report showed again Wednesday. As you point out, the government shutdown will certainly be a negative. It certainly wouldn't affect the September report, because it’s obviously an Oct. 1 deal, but I think people are probably underestimating the effect of that. On an economy that was already looking a little soft, I think it's a potential for a disaster.
Stipp: All right, Bob. We're looking at some incomplete data in all likelihood for the month of September employment report, but thanks for those great insights on the data that we do have.
Bob Johnson: Thank you.
Jason Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.