While demographics suggest a flat working population, 2 million people added to the workforce in the last few months is a sign of labor market health, says Morningstar’s Bob Johnson.
Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. The U.S. economy added 215,000 jobs in March, slightly ahead of expectations. We're here with Bob Johnson, our director of economic analysis, for his take on this report. Bob, thanks for joining me.
Bob Johnson: Great to be here today.
Glaser: Let's start with the headline number before we look at some of the underlying trends. 215, a little bit better than what you thought at 200. What does this say about the strength of the labor market?
Johnson: Yeah, I think it was a good month for employment growth and the nice thing, there was no kind of huge revisions to past months so it was kind of a pretty good down-the-middle number, and it was a little bit better than we had been thinking with 215,000 jobs added. That's still slightly below our 12-month average of around 220,000 jobs. But it's still... It's a nice gain and we're glad to see it.
Glaser: Where are jobs are being added?
Johnson: Yeah, by sector, one of the highlights was government added 20,000 jobs, and of course that's been a sector that's relatively large and hasn't grown much since the recession. And we saw a little pickup especially on the local government side. So those are good-paying jobs, so we're glad to see that. On the negative side, we saw manufacturing jobs decline back 29,000 and mining decline. Both of those are high hours, high-paying jobs so we're kind of disappointed to see that. But given some of those industry pressures it doesn't come as a big surprise, and in fact they had been a little slow as business slowed to kind of slow the growth of employment and manufacturing, and I think this may be just a little bit of a catch-up in the numbers. So nothing too bad there. Healthcare continued to be a decent adder in terms of growth, as did retail sales.
Glaser: One of the question marks over these reports has been the decline in temporary workers. Some people see that as maybe a sign that businesses are less confident, they don't need these workers, that things are slowing down. What did that show us this month?
Johnson: Yeah, it was another decline this month. About 4,000 jobs lost in temporary help, and we've had four or five months of really subpar growth and even losses some months in the temporary health sector. And the thing with that is that temporary help is usually a leading indicator, it's the first to come back when we come out of recession because people say, "I'm a little afraid I'm going to hire somebody temporary." So they don't have to turn around and fire somebody, and they're also kind of the first to go when we start having problems. It's easier to lay off someone... Just tell somebody's boss don't report than it is to fire somebody. And so, the fact that these numbers have been so soft seems to indicate that maybe we're seeing some some weakness in the employment market, and that's kind of the typical view of it. I've got a slightly different view of it. I think that temp help may be slowing because more of those people are converting to full-time work. As the economy gets stronger, people are saying, "I want the benefits; I need this; I need to be converted." And I think there's a little bit of a pressure to get out of some of those temp workers, and it may be actually a sign of labor market strengthening.
Glaser: And we're seeing any of that in wages? Do you have to pay more to keep people on board?
Johnson: Well what actually happens when you move people from temp to full time, typically you get a better benefits package, but they get a lower hourly wage believe it or not. And so as it turns out as we move from temp to full-time employment, it actually tends to depress wages. Which actually in this report... I mean it was one of many factors, but we did see some wage growth this month about $0.07 following a month of decline. So that was good to see some improvement. It maybe wasn't quite as much improvement as some of us had hoped, and again I think part of it is this temp to full-time situation. Part of it is that we're losing a lot of manufacturing and mining jobs, which are some of the fastest-growing, longer hours, heavier weight in the calculation type of numbers. We've seen good growth in retail which is not as great a number.
We've seen the health-care sector go where I think more of the growth has been in lower wage employees there. It's not more doctors, it's not more high-end nurses. It seems to be more of the help type of people that are gaining because there was no growth in healthcare wages last month, also kind of depressing the number a little bit. So there's a lot of interactions in the wage number, but we still were up 2.3% year over year, and even if you take inflation away, we were up about 1.3% in terms of the hourly wage adjusted for inflation. And since 2000, we've had a growth rate of about 1% in that that real wage. And so we're still running a little bit ahead of that, but as inflation comes up a little bit we're going to fight a little harder to stay about the long-term average.
Glaser: The labor market participation rate ticked up again this month. Is that another factor? Are more people in the labor market depressing wages?
Johnson: Absolutely true. You know one of the... The biggest surprise of the report was kind of the participation rate and the ongoing improvement in that number. Month-to-month that wasn't such big number. It was up a tenth from from 62.9 to 63.0, so not necessarily a huge increase, but if you look at it over five months of improvement, the labor force has grown by about 2,000,000 people in just five months. So that's really kind of a huge number that's relatively unprecedented, especially in a market where you've got a lot of demographic pressures that almost suggests that we shouldn't have had any growth in the labor force. So clearly a lot of people are getting drawn back into the workforce, and that obviously creates a little bit more competition, and that may be part of what's behind depressing the average wage growth as well. And a lot of the new people entering the job market right now are tending to be people with a high school education or less. That's where kind of we're getting the flood of new people. Other categories are growing, too, but the biggest growth is actually in the people with relatively low education levels.
Glaser: You mentioned that manufacturing is still losing jobs, but we've got some other data today on manufacturing in the U.S. and abroad that looks pretty good. How do you kind of put these two things together?
Johnson: Yeah, I think the numbers today were good. We saw the Caixin numbers and the official government number PMI for China. And both those numbers showed really significant improvement month-to-month after a couple of so-so months. So it was a great performance there. We're still not ebullient, that's for sure, but we've kind of stopped going down in both in terms of the U.S. and the Chinese PMI data. So that was very good to see. A lot of it was broad-based strength, it was orders, it was current production. A lot of categories in both sets of PMIs were very strong, suggesting this was very sustainable. The ISM data in the U.S. was back over 50 again. The anecdotal comments they always include were uniformly positive, which was great news.
But the one other feature that was the same in both reports is that employment is still looking kind of on a downward path, and I think manufacturing has slowed, and I think they probably haven't slowed employment growth as fast as the manufacturing sector has slowed, and it kind of caught up with itself a little bit this month. But in general, the trend has been down. I think businesses are getting a little bit more efficient, and without much growth and this increasing efficiency, they need less workers, and so that's put pressure both here and even in China on the growth and labor force.
Glaser: So overall, the labor market report shows a continued strength in the U.S. So when the Federal Reserve looks at this, is it really inflation that they're gonna be keyed in on when deciding when it's time to raise rates again?
Johnson: Well, certainly some of the data they presented this week seems to suggest they're going to be looking at a broad range of things and including the U.S. I mean, they kind of played the good cop, bad cop routine this week. Last week, they had two big speakers out and both of them were like, "Oh, maybe it could happen in April." And, "Oh, we're worried about this inflation thing." And then of course this week, we had two more. Yellen on Monday and I think Evans this week both suggesting, "Maybe we'll have more raises this year, but probably not April." And sounded a very dovish note. So I think they're kind of undecided on exactly which way to go here, too.
And I think they're going to continue to watch the data and see what happens. And I don't think anything today would do much to sway them. I think that the wage rate growth was contained, the participation rate was certainly a positive, makes them think better about the labor market. But the fact that the average wage didn't go up more than it did probably says, "Whew, I can wait at least until the next... Not until the April meeting, but the one after that before we think about it." So it clearly had some positive effect from that standpoint.
Glaser: Well Bob, I certainly appreciate your take this morning.
Johnson: Thank you.
Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.
