Be on the lookout for revisions to August's lackluster report, plus the wage-growth data, when sizing up Friday's employment report for September, says Morningstar's Bob Johnson.
Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. After August's disappointing payroll report with only 142,000 jobs added, investors are very focused on September's numbers. I'm here with Bob Johnson--he is our director of economic analysis--for a preview of that report.
Bob, thanks for joining me.
Bob Johnson: Well, thank you for having me today.
Glaser: So, we got a first read from ADP on private sector jobs. They said 213,000 added. What do you think about that number? Does it bode well for Friday?
Johnson: I think it's a great number on several levels. At 213,000, it's up from the previous month, which they now have at 202,000. So, that improvement is nice to see, and it means the trend is generally better.
The other interesting thing about the number is that ADP really didn't get close to the government number. In August, the government said 142,000; they're now saying 202,000. There is usually a big, big, big adjustment to the ADP numbers after they've blown a forecast, and now it's interesting to see that they did not do that this time. It suggests that the government number may have to come up in the near future.
Glaser: Let's take a closer look at the ADP report. I know you often look at the mix of small, medium, and large businesses--who is adding jobs. Anything surprising on that front?
Johnson: There was some really good growth again in small business, which we love to see because that can often be a driver of job growth. We also were surprised to see some really nice growth on the large-corporation side. We thought with the stronger dollar and some of the weakening overseas that maybe that would cause some headquarters action to slow at big corporations. It did not. There was some really nice growth at large firms as well. In fact, the only category that was at all disappointing was the medium size, where the gain was maybe only three quarters of what it's been the last few months. So, that one was the one that was a little bit surprising.
Glaser: What does it look like when you slice it by sector? What parts of the economy are adding the most jobs right now?
Johnson: Well, the interesting part--or relative change, so to speak--is that we had some real improvement on the goods-producing side of the economy, whereas the services part of the economy stagnated a little bit. It didn't fall apart. Nothing terrible happened. But we had 20,000 jobs added in construction and another big number in manufacturing, where we added 35,000 jobs--which, by the way, is a best number since all the way back in 2010 when we were just coming out of the recession. [That was a time when] you would expect a big rebound in jobs. So, that was very interesting to see that the goods-producing side is doing so well.
On the services side, again, a little bit off of where we were last month. Professional and business services, which has been red hot until recently, was again just a little bit cool this month, as it was last month. So, no big concerns there. In fact, I'd rather see it in other categories than in this one necessarily. But again, the services side is not doing quite as well as the goods-producing side of the house.
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Glaser: Do these ADP numbers and other employment metrics that we've seen over the last couple of weeks support that 220,000 consensus for Friday's government report?
Johnson: Absolutely. And I know everybody is very worried after the 142,000 that we saw in the official government report. I think that the ADP report combined with what I've seen in the JOLTS (Job Openings and Labor Turnover Survey) report, what's in some of the ISM (Institute for Supply Management) employment reports, all of those are indicative of a relatively strong employment-growth situation. In August, when we saw the bad number, and September, it just suggests there was something that the statisticians didn't work out right in August. And I really do think that the data is very supportive of that 220,000 consensus--in fact, I could argue even higher.
Glaser: But given that August looked so poor, could we see a big revision there? How could that impact September's numbers? How should you look at this top line?
Johnson: That's going to be real tricky tomorrow. And don't be blown away by whatever the top line number is tomorrow, good or bad. A couple of things could happen. August is almost always revised; but sometimes it takes a while, sometimes it happens more quickly. But it certainly doesn't square with the rest of the numbers that we saw about August.
So, what happens if they decide, "Yeah, there was something wrong about August and now that the government number is 200,000 or 210,000, then we won't have very much job growth in the September report." Or conversely, they decide it kind of gets made up by having a really great September, and we have something like 250,000 or 275,000 jobs, which is kind of just a catch-up. And if you average the two together, you are about where we should be. So, I'd look at the average of those two numbers being somewhere in the 200,000s. And if we're in there, I'll be happy.
Glaser: Let's dig a bit deeper then. How about wages? There has been concern that maybe we're adding jobs, but they're not high-paying jobs; it's not driving consumer spending. When you are looking at the wage data that will come out on Friday, how are you going to interpret that?
Johnson: Earlier this year, it was pretty horrific. We had a couple of months where there really wasn't much growth at all and a couple where they didn't keep up with inflation. The last few months have been a little bit better--not great--but a little bit better. And last month, we actually saw a narrower slice of the production-workers part of that number start to show some year-over-year improvement. The overall big number that includes all workers did not. I'm hoping that one leads the other and that we see some better wage growth in tomorrow's report. But now that will probably be watched even more closely than the raw employment number, since we already know that might be goofed up on a couple of counts.
Glaser: So, if you had to put a point estimate for September's job growth, where would it be?
Johnson: I'm going to say 250,000, and I think a bunch of reports have been pretty optimistic about the employment situation; plus, then, we've got somebody that was on strike last month. Those workers came back this month. So, that's going to automatically add 25,000. Then, you've got the normal stuff about August--that could add to the number. We do have one offset: Atlantic City had a bunch of layoffs last month, so that's going to hurt a little bit. But overall, I'm going to go with 250,000--on the high side--for September.
Glaser: Bob, thanks for the preview, and we'll talk to you Friday after the report is released.
Johnson: Thank you.
Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.
