September's job gains were solid, but after adjusting for a weak August, growth remains in the same year-over-year range we've seen for quite some time, says Morningstar's Bob Johnson.
Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. The U.S. economy added 248,000 jobs in September, and the unemployment rate fell to 5.9%. On the surface, this looks like a strong report. I'm here with Bob Johnson--he's our director of economic analysis--to take a look under the hood.
Bob, thanks for joining me.
Bob Johnson: Great to be here today.
Glaser: So, that 248,000 month-over-month increase looks pretty good--about what you were expecting. Can you put this in context for us? How does this fit into the year-over-year numbers that I know you look at a little bit more closely?
Johnson: First, let's look at the month-over-month numbers. Now, 248,000 looks good--almost scary good--the kind of [number that makes you think], "Gee, maybe the Fed needs to adjust things here a little sooner than expected." But do keep in mind that we had a strike situation that took about 20,000 jobs away from August and added that same number of jobs when those people came back in September. You roll that out and it looks more like we grew in the low-200s in August and we grew somewhere in the low-220s in September. So, it's not this big, giant acceleration. Not a giant sea-change going on here at all. When you adjust for that, it's really not as big a deal as people think it was.
Now, I do like to look at the numbers on a year-over-year basis as well. There, we've seen just a small acceleration, but we're in such a tight range there. We've been generally in employment growth between 2% and 2.2% for the last five years. We're at the high end today; we're at 2.2% versus the 12-month average of 2.1% growth in employment year-over-year three-month average. So, we're doing fine.
Glaser: We spoke earlier this week; you mentioned that revisions were something you were going to be watching closely. What happened for the July and August numbers? How much were they changed?
Johnson: Combined, we had about 69,000 additional jobs added. So, I suspected the August numbers were artificially low. We only added 140,000 jobs, as originally reported. But you know what? There's a jinx on that number and, as usual, they revised it up. And this time, it's now showing 180,000 jobs added, which is more back to normal. And then you add in the 20,000 strike workers and you are back to normal at 200,000 jobs added. That's been the long-term trend in the number--about 200,000 per month. And by the way, they still have an additional shot at the August number yet; so, we could even see a better number for August.
Glaser: Taking a look at sectors, then: Who is adding jobs? What's really driving these numbers?
Johnson: The numbers were pretty boring. There wasn't too much to read in the categories. The strongest was professional and business services; it was up about 81,000 workers. So, that was good news. That's a relatively good paying sector. Yes, some of it was temp workers, but some of it was architects and other professional engineers, and so forth. Those are jobs that pay really well. So, I was glad to see that in the numbers. Overall, I'd say the goods-producing stuff was not quite as strong, and some of the services sectors--especially the professional and business services--were really strong. Health care looked a little better. Nothing particular in retail or leisure. It wasn't a month when those numbers did spectacularly well, meaning we added a bunch low-wage jobs.
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Glaser: Speaking of wages, that's another area that's been a big focus for people. Wage growth is actually down $0.01. And when you see all these jobs getting added, it's kind of a question mark as to why wages aren't growing, too. What do you think is behind this? Why are wages still stagnating here?
Johnson: It's an excellent question. I was really surprised not to see the number a little better, but there are some odd things happening. I don't think we can take that number exactly on face value anymore. There are a lot of mix shifts going on in businesses. We're seeing a little bit more in services, which tend not to pay as well. And this is important, but it's not like somebody is seeing huge downward pressure on their current wages or not getting a raise at all.
Certainly, the most troubling thing that I've seen in the data on wages is that the manufacturing-worker wages just aren't keeping up. It's very odd. I don't know if it's the two-tier wage system at some of the bigger firms that's doing it or if it's that things have been so mechanized that, again, they are able to add some low-wage people at the bottom to just push the machines around, so to speak. But it is a little bit troubling that manufacturing, which we had hoped would be--and is--kind of an engine of growth, is actually seeing some pretty negative trends in wage growth.
The other one that has had big negative trends in wage growth is health care. There, I think maybe it's a mix thing. We're adding more nurse practitioners, and nurses are doing more of the work of doctors. So, what growth we're seeing is maybe at the lower end of the scale versus the higher end of the scale because health-care wages, being generally in a pretty decent-growing sector of the economy, are not showing the type of growth that I would like to see. So, I think we've got to be really, really careful about the numbers. Can we say because the aggregate number is flat, does that mean that most people didn't see any wage increase at all? No, that's not the case.
Glaser: And then how about hours worked?
Johnson: Hours worked was a good part of the story. We actually ticked it up, which is a little bit unusual in this stage of the recovery. Usually, you're adding more people and you're bringing the hours down to release some of the stress on the people who are already there. So, I was pleased to see the hours up. And who knows? It may reverse itself next month. But certainly, just growing the hours worked by a tenth is almost as good as adding 100,000 workers. It does the same thing to adding to the wage base. So, I really did like to see that that number was up. It's a bit unusual, which makes it a little bit suspect.
Glaser: Wrapping this all up, then: Does this report change your outlook for employment for the year or for growth for the rest of the year?
Johnson: I am at about 200,000 jobs per month for the year. Right now, we're in the 210,000 to 220,000 range. So, we're a little bit better than what I'm thinking, but the back half of the year gets a little bit harder in terms of comparisons and in terms of adding jobs. So, I'm going to stick with my 200,000 now--which means, at the back half, we're going to see a couple of relatively slow months of just 200,000 or so. But I'm not worried about that. I think that's sustainable and consistent with the consumption numbers that we are seeing. But I'm certainly not [expecting progressively better numbers in the second half of the year]: This is 248,000; the next number is 270,000; the next one is 300,000. Unfortunately, I think it's more back down to 200,000 again.
Glaser: Bob, thanks as always for your analysis.
Johnson: Thank you.
Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.
