Jobs Growth on Sustainable Path

Jeremy Glaser: For Morningstar.com, I'm Jeremy Glaser. The February jobs reports showed a continuation of a trend of more than 200,000 jobs being added every month. I'm here today with Vishnu Lekraj, senior analyst, and Bob Johnson, director of economic analysis, to take a closer look at the numbers.

Gentlemen, thanks for joining me.

Vishnu Lekraj: Thank you.

Bob Johnson: Glad to be here.

Glaser: So, let's dive into the raw numbers first. How many jobs did we add in February, and is this about what you expected?

Lekraj: Yeah. In the private sector, we added more than 230,000, and then just subtract 3,000 from that and from government numbers, and we're at about 228,000, which is a very, very good number. It's above expectations consensus. It's little bit below what I was expecting, but I was way above consensus anyway to begin with. But it was overall a very good number. A lot of good solid underlying trends have continued here during the past several months, which if anybody is doubting a recovery at this point, I think, that you're grasping at straws right now.

Johnson: Yeah.I think, the numbers have been really strong, and everybody likes to look at the 200,000 mark as being a little bit magical, and I was glad to see that. But I like to look at the numbers on a percentage basis and also look at them year over year. Then to smooth out the bad months, I like to look at a three-month average.

Employment is up about 2.1% year over year on a three-month-moving-average basis, and that's a really good number because once you expand employment that fast, that typically is a type of growth that you're going to see in GDP. So, that's why I look at that number, and that 2.1%, to give you some idea, was about 1.1% at the same point a year ago. So, we've really kind of dramatically stepped up our game, and I think, this is the right way to look at the numbers.

If you really wanted to be aggressive in rose-colored glasses, you'd look at the month-to-month change and annualize it; we're up over 3% on that basis. So that's really good news, and I'd say one other thing that I noticed in the raw numbers that I'm very impressed with, we lost 8.8 million private-sector jobs in the recession. We've now have 4 million of those 8 million back, so that's really good news. If you start annualizing this month's number of more than 200,000 and compare it, we'll have recovered all of the jobs somewhere within the next two-year period. That's the first time I could have said that in a long time. Mostly it's, "Well, if you do it over four or five years, you're there." So, the end maybe is in sight here.

Glaser: How about revisions? I know that oftentimes the Labor Department goes back and takes a look at previous months. For those months that looked so good in December and January, were those aberrations or did those stay strong?

Johnson: Those months continued strong, and in fact, there was significant boost to both December's and January's numbers, one of them was boosted by more than 40,000 jobs, so the numbers look even better. The neat thing about that is that drives the consumer-income numbers that had been a little bit lackluster. And now they are going to have to go back and adjust those numbers because now the employment numbers in those months were higher. So, that's going to look better in the surveys, too. So, that's really good news because employment drives so much of the income data.

Glaser: Let's take a look across sectors. What's performing well? What's still struggling?

Lekraj: Everything for the most part is performing well, outside of government. When you break apart the numbers, manufacturing was strong. Retail was the only one that did struggle, and Bob really called that earlier this week. That was the only category. Every other category is pretty strong, especially health care, which really drove a lot of growth. Temporary help again drove a lot of growth. But what's heartened me is the manufacturing sector, which is up about 30,000, I believe, month over month, which shows continuing strength for goods-producing sectors.

Johnson: Yeah. A lot of that was in durable goods, and that was very good to see. So we've had a lot of good numbers in there. Construction was relatively flat. We've had a few months of really good whether abnormally, so you didn't have the kind of the bounce-back phenomena this February. We were still flat there, so that was good to see. Overall, I thought leisure and entertainment might get hit because of ski resorts and other recreational things being off, and they were off. But what really offset it is that we had a really great month for restaurants. So that helped, too.

Glaser: So that sounds like good sign. People have discretionary income. They're out there spending in restaurants. How about the unemployment rate? I think certainly that's a number a lot of people are focused on. What happened with it this month?

Lekraj: It held steady this month, and what was really positive was that the participation rate went up. So, a lot of naysayers look at GDP, and they look at it fall or they look it hold steady, And then they'll go right to the participation rate to see if that fell. They then try to work around and say it was just magic or sleight of hand that happened to make the unemployment rate fall, but this month it was different. This month the unemployment rate held steady, and the participation rate went up, which is very good news. And that's going to probably be the case during the rest of the year like we mentioned in our previous video, where the participation rate is probably not going to go up significantly from here. It will probably hold steady and most likely come down toward the latter half of 2012.

Johnson: One of the interesting things I thought in the number too, now, over the last few months we've seen a nice improvement. You get the number of people unemployed and usually most of them are people who are laid off, lose their jobs, or finish work assignments. But there are also people who re-enter the job market, who had given up and now come back to look for a job again. There are people who have just finished school and become new entrants to the job force. And there are people who leave their jobs. When you look at the portion of people who come from those last three categories--the more discretionary ones and are what's driving the number of unemployed right now--the number of people actually laid-off or fired as a percentage of the number of people unemployed is much less than it was a year ago. So that's a really positive sign that's beneath the covers there.

Glaser: The report also has information on average workweek and the wages that workers are being paid per hour. What did those numbers show us this time?

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Johnson: As we anticipated, the workweek was relatively flat. When you get to this point in the recovery, you tend to add people, instead of adding hours. People get a little bit burned out, and actually in a couple of categories, the workweek actually ticked up just a little bit, including manufacturing. So that was good to see. But more importantly, the hourly wage was up a little bit, by 1/10 or 2/10 depending on which metric you use. Again, it's not hugely wonderful, and year over year we're up about 2% in terms of the wage, which is just a little bit behind inflation. So, we're still playing catch-up here, but we didn't lose any ground this month.

Glaser: Now, one of the trends that we've noticed and you have pointed out before in the unemployment reports is that college-educated workers have really been doing pretty well. Their unemployment rate is relatively low. A lot of the job growth has come from there, while workers without high school degrees or just high school diplomas have been struggling, have you seen any turnaround on that front this month?

Johnson: I'll letVishnu comment on some of the detail, but just to give you some of the numbers, in the last three months, the unemployment rate for those without high school diplomas and below has gone down from 13.9% to something like 12.7%. So, a 1.0% type of fall-off. If you have a high school degree or some college, your rate also went down probably about 4/10 of a percent. So again, that's nice improvement during the last three months. The college-level unemployment rate, which was low to start with at around 4%, was basically unchanged this month. So, some of the people that may get the short shrift at the bottom-end of the scale, have actually done a little bit better during the last couple of months.

Lekraj: In my opinion, that's a key factor because those folks were the ones that really suffered a lot during the recession, and this is the last category to really start to recover robustly. You could take into consideration what's going on with the lower-end wage earners and the improvement there, and you can take a look at some of the consumer-confidence numbers and some of the other surveys. I looked at a Wall Street Journal survey this week that did a bunch of questions within the poll, and they asked a wrong track/right track question for the United States. And it showed there was an increase in the right track versus the wrong track for the first time in a little while. So, there is some confidence in there. There is some confidence in the bottom-end of the wage earners, which I think is going to be a very, very good key catalyst for growth here moving forward.

Glaser: So, is this sustainable? Can the economy support this kind of job growth for the rest of 2012 and through 2013? Or are we going to see a major slowdown later this year?

Johnson: Well, my view is that we've had a little bit of help from some of the weather such as with some of the construction-related stuff that usually drops off, and some of the ways people did their hiring during the holidays were all a little bit favorable to the numbers. But I don't think we are falling off a cliff here. I think, we are going to stay over the 200,000 level here, and I am relatively optimistic. I don't think we are going to go 250,000, 275,000, 300,000, or 350,000. That's not going to happen, but if we can keep in this 200,000-250,000 range as I indicated, that's probably enough to bring us back to full employment in the next two years.

Lekraj: So when you take a look at the economy as a whole--when I talk to private businesses, when I talk to heads of divisions, I know I've said this in the past--when you talk to these folks on the ground that are not numbers in a report, they are more positive. They are hiring more. Their businesses are doing better, so all-in-all, when you take everything into consideration, in my opinion this recovery should be sustained. Now, there may be ebb and flow in terms of job growth per month, but as long as we are on the path we are now, it should be good news from here on out for a little while at least.

Johnson: The only other thing I'd add is that, I think now we are getting a little bit of mix, where the numbers are coming a lot from the smaller businessmen, and the midsized businesses that aren't in the S&P 500. I think this because we are actually viewing some weakening signs if you talk to the S&P 500 companies, the big large companies that we typically follow. But the smaller companies I think are doing much better now, and you see this because the so-called household survey did even better than the establishment survey, which tends to capture more of the small business, and they added over 400,000 jobs according to that survey. So, I'm very pleased with those numbers. I think, the dichotomy you are seeing from the companies that are saying "Things are little dicey," that's the big large Fortune 500 companies. I think, the smaller companies are beginning to do a little better.

Glaser: Well, Bob, Vishnu, I appreciate your analysis today. Thanks for talking to me.

Lekraj: Thank you.

Johnson: Great to be here.

Glaser: For Morningstar, I'm Jeremy Glaser.

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