Friday's jobs report will likely confirm that layoffs in August were limited but that hiring remains anemic, say Morningstar's Bob Johnson and Vishnu Lekraj.
Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. The market remains extremely focused on the employment market that's been stuck in neutral for some time now. I'm here today with Vishnu Lekraj, senior analyst at Morningstar, and Bob Johnson, director of economic analysis, to get a preview of Friday's job report.
Gentlemen, thanks for joining me.
Vishnu Lekraj: Thank you.
Bob Johnson: Great to be here.
Glaser: So, Vishnu, on the Wednesday before we get the job report, we get numbers from ADP. Can you walk us through what those numbers told about the employment situation?
Lekraj: Yeah. On Wednesday ADP reported 90,000 jobs were produced in the private sector. That's about in line with consensus, maybe a little lower; but overall, what that tells me--and we've been stuck in this the same rut for the past four or five months--is that, we're are in neutral as you said before.
There is not robust hiring, but at least there is not a lot of firings. But in order for me to be encouraged, we need to see at least 200,000 to 250,000 jobs produced by the private sector every month in order for that unemployment rate to come down, in order for there to be a good improvement within the employment market.
So, along with those lines, you have a lot of turmoil that's been in the stock market, that brought a lot of the employment-services firms that I cover down. And what was being baked into a lot of the these market prices was a recession or recessionary employment levels. That has bounced back up a little bit which hearten the whole situation.
Glaser: ADP also gives us some information on individual sectors. Are some parts of the economy doing much better on the employment front than others?
Lekraj: Definitely. The services sector is still producing more jobs than the goods-producing sector, according to ADP, and also the small and medium-sized businesses are outpacing the large businesses, which goes hand-in-hand with what we've seen during the past several quarters.
Glaser: Bob, we also get weekly numbers on unemployment claims, that is people who are filing for unemployment for the first time. Can you talk to us a little bit about trends you've seen in that data?
Johnson: Yes. That data has looked a little better. Vishnu referenced that claims were looking a little bit better. We're now back down to the 400,000 level or so. Keep in mind, we were up pretty close to 700,000 in the peak of recession and in boom times, we'd be at 320,000 or 340,000 initial claims.
So, we're still not at boom times, that's for sure, but we're certainly well out of the recession, and the number has been the stuck in neutral like a lot of other numbers. It hasn't got much better and hasn't got much worse, but the 400,000 should look good for the unemployment report tomorrow.
The other piece of news in that is that the claims have gone up a little bit the last two weeks maybe to the 420,000 range and the reason that is because the Verizon employees strike has crept into some those numbers.
Glaser: So, certainly August has been an eventful month certainly on a lot of fronts. You mentioned that Verizon strike. Are there other special situations that you're keeping an eye on that could have an impact on Friday's number?
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Johnson: Well, one thing I'm worried about is that the financials sector has been announcing layoff after layoff. Trading volumes haven't come back as much as people would've thought, and a lot of major banks have decided to take firm action to cut employment. We've had a lot of those announcements, from the likes of UBS and Bank of America. A lot of them even had a very short fuse, and I'm kind of surprised they haven't shown up in the initial claims numbers yet. But we'll see if they show up in this week's employment report, but I certainly wouldn't be expecting any growth out of the finance sector on Friday.
Glaser: Looking at the seasonality, are we going to start seeing retailers hiring for Christmas? Are we starting to see that creep into the numbers?
Johnson: I'm going to refer that question to Vishnu. I want to talk about seasonality just a little bit from another viewpoint. The employment reports are massively adjusted each month, so you can compare month to month. So, some months are typically big hiring months like June, they take as much as a million jobs off the roles, when they do their calculations. Then in months like March and April, when they don't do much hiring, they add huge numbers to the job roles to make the months all comparable.
They're usually pretty good metrics, and they are well accepted. But I think, they have gotten a little out of hand, and they really kind of overstated the job growth this spring and then understated it in May and June. I think with July and August, the good news there is they are pretty neutral months, though there will be a little bit more headwind in August than there was in July.
Glaser: Then Vishnu to the retailers and their seasonal hiring, have you seen any indication of that picking up?
Lekraj: Well, we should start to see that indication come about within the next several months; but speaking to the folks out of our consumer team, they haven't really heard anything yet. And I believe businesses are very cautious, especially retailers. Just given the situation in terms of the discretionary consumer-spending numbers, consumer confidence, and supply chain issues going on still, we haven't really seen any indication as to whether it's going to be robust or not robust. This is going to be a really key seasonal hiring period because this will be a good driver, either positively or negatively for the economy moving forward.
Johnson: Yeah. I think the retail numbers will be relatively important tomorrow. The retail store sector has been relatively strong. Everybody has been so afraid to the consumer walking away, but the weekly numbers I check on shopping centers still look pretty good. Chronos, the company that manufactures the old-fashioned time clocks and new versions as well, actually goes out and does a survey of retailers. The Chronos report found that hiring there still remains relatively robust for the last reading we got, which was for July. Now, this will be August. We don't have anything there, but the trends through June and July were pretty good in retail hiring. So, we'll have to see if that holds up again this month.
Glaser: Switching gears slightly, there has been a lot of chatter out of Federal Reserve watchers that there might be a new case for a third round of quantitative easing. We've been looking for any signs we can for anything coming out of the Fed about that. Do you think they are going to be watching this report? What impact could this report have on the Fed's decision?
Lekraj: Definitely, I think there could be a case of a double negative where negative job growth could lead to more QE3 or more stimulus in the minds of investors and the minds of market watchers. That can move stocks positively, ironically. But when you read through Fed chairman Ben Bernanke's statements, and you read through what he is stating, he is stating that he is ready to pull the trigger on whatever is needed to put some more stimulus within the economy. How explicit that's going to be, I'm not exactly sure. But again market watchers may see a double negative situation on Friday.
Glaser: So whatever we get out of the Friday results, we could see some interesting results from stocks either way
Johnson: We could have a very bad employment report and it makes the market go up because QE3 is going to happen.
Lekraj: Right.
Glaser: Then finally if I could just your forecast on what you think the jobs added will be on Friday.
Lekraj: Yeah, I think we're going to be about 100,000 give or take 20,000 plus or minus. I think consensus is 50,000. I believe it's going to be a little better than what a lot of people think. But that could be subject to a lot of factors.
Johnson: I'm a little bit less than Vishnu this time around; it's unusual, But I'm more in the 75,000-100,000 range in total jobs. I think that you're going to have the Verizon strike take away some numbers, and hopefully the Labor Department will spell out exactly what they are thinking on that because it is 45,000 people. They were technically on strike; they're not counted as employed technically. But we'll have to see exactly what dates and how they pass through and whether the Labor Department is explicit about that. So watch out for that if the number is bad. Go ask "Does that include the Verizon situation?" So, that's certainly one thing that causes me to be a little bit more negative than Vishnu, I think a little bit.
The other is, I mentioned the seasonal factor is probably a little stronger than it was in July. So, that means we'll have a little bit less hiring than we had in July. So that kind of pushes me out of Vishnu's range down under 100,000 again, just on that seasonal factor. Obviously, the finance situation is not good, and I think construction and manufacturing, which have both been a little bit stronger lately, are going to be a little bit weaker this time around. So, those are the things that got me worrying and why I'm more in the 75,000 camp than Vishnu.
Glaser: Well, Bob, Vishnu, thanks for thanking with me today. We'll regroup on Friday to get your reactions to the report.
Lekraj: Appreciate it.
Johnson: OK.
Glaser: For Morningstar, I'm Jeremy Glaser.
