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April's Job Gains Not a One-Off Deal

Revisions to prior months and broad-based gains show strengthening fundamentals in the employment market.

Jason Stipp: I'm Jason Stipp for Morningstar. We got the government's employment report for April; 244,000 jobs were added to the economy. That was a lot more than a lot of economists were expecting.

Here to dig into the numbers and offer their take on what comes next is Morningstar's Vishnu Lekraj, he is an equity analyst covering the employment sector, and Bob Johnson, he is director of economic analysis. Thanks for being here.

Vishnu Lekraj: Thanks for having us.

Stipp: So Bob, it looks like it pretty positive top-line number. We actually had 268,000 private sector jobs added. Government then subtracted 24,000; that's how we got to the 244,000. What's your take on that number?

Bob Johnson: I think it's a great number, and I think as important as that particular number is, the 268,000 private sector jobs, there were some revisions to prior months, too, and so now we've got job growth of 240,000-260,000 for three months running. So it's not just kind of a one-off deal where the numbers suddenly got better. I think it's great news that we've had an extended increase in the number of people employed.

Stipp: Vishnu, when you dig in and look at what contributed to that increase--and you actually were above consensus with your estimate and this was actually even a little bit more than what you were thinking.

Lekraj: Right

Stipp: What led to that good number?

Lekraj: It's a very positive number on the top line, but it's even more positives when you dig down into each subcategory--it was either flat or up. So, there wasn't any sub category that really lost jobs this month, which is a very good hardening sign. Again the health-care sector, leisure hospitality sector, and the professional services sector, interestingly enough, went up, and that wasn't because of temporary labor; that was because businesses were adding back office staff, which is very good.

Johnson: And the numbers were really good, and I would say retail was a stunningly good number, and maybe it had a little bit to do with the late Easter, and that may kind of reverse itself ... that may have inflated the number just a little bit, but that was the only funny thing I saw in the number.

Stipp: Another thing I wanted to touch on was the unemployment rate, so we saw that tick up from 8.8% to 9.0%. It put a little bit of a damper on the feel-good jobs-added number. Can you explain, why is that moving up?

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Johnson: Well, it's a very, very complicated number, and it just moved a few tenths, and the number had been acting better than it should have, I think, over the last three or four months, and it normalized back to a 9% level [in April], where I think it makes sense, and it wasn't a big rush of new people into the job force. There was a little statistical difference between the databases, so I don't view it as a big deal. It was a rounding error.

Stipp: Vishnu, when you look at that number do you think it's any cause for concern or is it something that can just happen month-to-month because of the way they calculate the data?

Lekraj: It's going to fluctuate; it fluctuates even during expansionary time. It's going to go up and down by 10-20 basis points, so it's very normal. Again, like Bob said, there are many moving parts to that number. When you sample size thousands of people each month, there are going to be fluctuations.

Stipp: Bob, one of the things we spoke about, an important data point we would get today is the wages and the wage growth, an important one because we are seeing some inflation, and we would like to think that paychecks are going to keep up with that. Did we see that in April?

Johnson: There are a lot of different ways that people measure the wage number. You can look at a very broad base of the workforce. You can look at a narrower set--manufacturing employees are one that's in between... And that's the one that's got the longest track record, the one that I watch the closest. And real wages went up three-tenths of a percent [in that data set]. Still not quite as much as inflation did, but awfully close. So I was actually kind of pleased with that number. But there were other parts of the database on wages that weren't as bullish, but this one tends to lead all of the others. It's the more leading of them, so I was pleased.

Lekraj: Just to add to that, ADP reports the check size of the paychecks they're paying out. They don't give a direct number, but they directionally tell you where it's going, and the management team has mentioned that paycheck size has been increasing.

Stipp: So, hopefully we'll be able to at least keep up a little bit with the higher prices that we're seeing. So ADP is one of the companies you look at. You also look at some of the employment-services companies as well. What are they saying to you and can you get a sense from their commentary about what we might expect going forward?

Lekraj: Over the last three quarters, you can see evolution with some of these management teams where they are becoming more and more positive. They are seeing more and more evidence, and they are becoming a lot more optimistic about what's going to happen in the future. Many of the staffers, many of the payroll processors, many of the other employment services firms have stated, and they are pounding the table, that things are going to start to get a lot better during 2011 and actually accelerate towards the last half of the year.

Stipp: Bob, question for you, some reports this morning mentioned that we did see a slowing in GDP in the first quarter, and they say this could bode poorly for the job market coming up here for the rest of the year because we have seen the economy slow down a little bit.

We also got some other recent data this week on initial unemployment claims that didn't look so great. Can you tell me should be we worried about the reports that we're going to get for May, June, July, and the rest of the year?

Johnson: Well, I think today's report actually bodes for an acceleration in some of the GDP numbers we see in the weeks and months ahead. I think the second quarter will look better than the first, just on the weather and a couple of special factors related to Japan that maybe a little bit less. So, I'm looking for a better number GDP-wise. The revisions to past employment data actually drive quite a few things in the GDP calculations. So, I'm pretty sure that the GDP number that was at 1.8% will get revised upward based on some pretty spectacular revisions in February to the database.

Stipp: All right guys, well you know I'll look forward to checking in with you for those future reports to get your take. Thanks for joining me today.

Johnson: Thank you.

Lekraj: Thank you.

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