An acceleration in job openings, an uptick in housing prices, and a better-than-expected services reading fly in the face of recent economic doomsayers, says Morningstar's Bob Johnson.
Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. After last week's disappointing jobs report, many are wondering if the economy is still on track. I'm here with Bob Johnson--he is our director of economic analysis--to look at some of the data that we saw this week.
Bob, thanks for joining me.
Bob Johnson: It's great to be here today.
Glaser: Let's start with jobs again. We got the JOLTS report, which is on job openings and in turnover and quits. Can you tell us how many openings we're seeing?
Johnson: Well, we had more good news out of that report. We had over 5.1 million job openings, which ticked up from under 5 million. So, it was an acceleration in the openings, which took everybody by surprise; the number was better than anybody was thinking. And so certainly, it was a very positive report. It maybe contradicts the labor report that we saw last week a little bit. Not horribly so, but it certainly seems to indicate maybe there is more underlying strength in the data than we thought.
Glaser: Whenyou look at the sectors that have the most openings, what parts of the economy are seeing more tightness in the labor market?
Johnson: That's fascinating because one of the things we like to do is look at the number of job openings that are out there and compare that number to the number of unemployed people in that same industry. And when you get under one, that tends to be the point where you get some shortages--you get some real issues. Wages have to go up or something kind of needs to adjust relatively quickly. And we've had the business and professional services category, which is a very high-paying category, under one for a few months here. It has kind of normalized a little bit; it's right at one right now. But joining them was the health sector, where the number fell under one for this particular month, which was really great news. At least from our labor-scarcity theory, that kind of cements the idea that we've got a tighter labor market. So now, we've got two of the 11 major sectors under one, which really seems to indicate that maybe the shortage situation is for real. And of course, we've seen the whole thing with the retailers, the Targets (TGT) and the Wal-Marts (WMT), raising their minimum wage. And then just a little bit more recently, we had the McDonald's (MCD) situation where they lifted their minimum wage. And certainly, that's going to have a broader impact on the economy.
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Glaser: So, it seemslike maybe that jobs report was maybe a little bit of an outlier. It's more noise rather than a sign that the job market is falling apart.
Johnson: Absolutely. I'm not saying that things are great. Labor got a little bit ahead of themselves. We needed a month of adjustment--maybe we even have another one--but things are not falling apart. And as we said last week, there was a really odd thing that happened with the restaurant-worker jobs that looked artificially low. It was really high the month before. So, that distorted the number by about 30,000. So, the report wasn't wonderful. There is no doubt about that. We expected it not to be so good at some point. But now, we'll have another couple months of leveling off, and then maybe we'll get back to over 200,000 again fairly quickly.
Glaser: Let's turn to housing, another area of the economy that's been reasonably weak. A bad 2014 year, not great so far this year. What are we seeing in terms of housing prices? We did get some data from CoreLogic this week.
Johnson: Some green shoots are there, and this is just another [indicator] that home prices are really kind of accelerating a little bit again, which can be good news and bad news. But the year-over-year price change on a three-month moving average bottomed back in December at 4.9%, and now we're back up to 5.3% on the CoreLogic data through March. So, we've moved back again. We had estimated for the full year that we'd be in the 4% to 5% range and thought we'd have an ongoing pattern going down until we had 4%; but now we've bounced back, and if you asked me today to make my forecast, I'd say it looks like a 5% to 6% increase in home prices. So, there's certainly an indication that things are a little bit tighter; we've seen relatively weak inventories, and that's beginning to move prices upward.
Glaser: You mentioned there are other green shoots in the housing industry. What else are you looking at as potentially a positive sign there?
Johnson: Certainly, we saw the pending home sales last week looked better with 3% growth. So, we've had a few months of sequential growth. And we've also had double-digit year-over-year growth in pending home sales. So, that's good news for the existing-home market, which was actually down in 2014. So, we're glad to see that.
And then the other key metric is new-home sales, where we've had two months in a row where we've been up over 500,000 new homes sold. And remember, new homes isn't always our favorite metric to use, because it includes not only the houses that started and that you're working on right now that somebody has bought, but they also include homes that are still on the drawing board. Somebody says, "I like that model home, but I want one of those and build it separately for me." So, they haven't broken ground yet. And then on the other end, you've got homes that have been sitting on the lot for a while that can be sold. So, you can have those sales do relatively well without having the starts numbers do so well. In fact, they will tend to drag the starts up in the months ahead. So, we felt really good about that new-home-sales report. So, I'm not as worried about the housing market as many others are.
Glaser: Last week, we had disappointing manufacturing news from ISM. This week, we got the ISM services index. What did that show us?
Johnson: The services index number was at 56.5%, down just a touch from the previous month. But at 56.5%, it's still a very high number. And services is two thirds of the economy; manufacturing is about a third. And one of the things about this piece of data is that it was stronger than everybody expected as well. So, everybody said, "Oh, the manufacturing was weak last week." But it seems like maybe the problem is more isolated in manufacturing and that it hasn't really spread over to the services economy, which still looks relatively strong based on this week's data.
Glaser: So, there are signs that maybe some of these oil issues are the big driver of some of this weakness, potentially?
Johnson: Yeah, absolutely. And on the manufacturing side, if housing had everything go wrong in 2014, manufacturing had everything go right. And now with the oil situation kind of reversing, auto is off to a weak start--now improving, however. That really drove manufacturing. It didn't look so good for a few months here, but I think maybe even there we'll be nearing a bottom relatively soon.
Glaser: Bob, thanks for your update on this data today.
Johnson: Thank you.
Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.
