Jobs Market Likely Still in Steady State
Against the backdrop of volatile GDP data, Friday’s employment report is expected to show continued growth.
Against the backdrop of volatile GDP data, Friday’s employment report is expected to show continued growth.
Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. After fairly weak GDP data the market is very interested in the jobs report. I'm here with Bob Johnson, he's our director of economic analysis, for preview of that Friday report.
Bob, thanks for joining me.
Bob Johnson: Great to be here today.
Glaser: So after softer GDP data, all eyes are on Friday.
Johnson: Yeah. Absolutely. The GDP data has been exceptionally volatile quarter to quarter lately and employment has actually provided a better indication of where the economy is at. It's had a relatively steady growth rate, although a slightly slowing one recently. But with that, with weak GDP data, people will be looking to the employment data to see if it confirms weakness in the economy.
Glaser: But we do have some hints that it does seem like it hasn't fallen off a cliff from ADP and others. What did ADP say?
Johnson: Yeah. ADP showed that we grew about 180,000 jobs in the month of July. So that's about just a little under the long-term average of about 240,000 payroll jobs that we've seen over the last 12 months. So a decent number. Certainly not a single digit number or anything like that, so kind of a very steady-state number.
Glaser: So what's the market expecting in the official report?
Johnson: Very similar. Even before the ADP report, they were thinking about 185,000. So the two numbers are in very close alignment and given that the unemployment claims have been relatively stable and some of the PMI data looked a little better, it seems to us that that's a pretty reasonable guess, at 185,000 jobs.
Glaser: When you look at that ADP number, is there anything about sectors or size of businesses that kind of jumps out at you, that makes you a little bit concerned?
Johnson: No. Actually it's on the other side. I think it's a little bit more positive. This time the job growth is a little bit more balanced between small, medium and large, with all contributing about the same size number of jobs. And we get very uncomfortable when small businesses are doing all the growing and the big businesses that can see more of the data are doing badly. And this time there was a much more even spread which we really like to see.
Glaser: And then in terms of sectors, I know there's been some weakness in manufacturing and construction. Did that trend continue?
Johnson: Well you know what, it's still--in the goods we were down just a little bit but it wasn't the double-barrel thing where we had poor manufacturing and more construction, which is what the ADP report showed last month. So this month it was just a small job loss on the construction side. So certainly some of the bleeding from the ADP side has stopped. So that's good news, and I think could bode well for Friday's report.
Glaser: So this is an important report, but you say we should be a little bit cautious about ever reading too much into a single month's number.
Johnson: Yeah. Any given month the statisticians will tell you if the number is 180 that it could really be 80 or it could be reported as 280. There's enough statistical room in there to drive a truck through, that it's better to look at the data on a year-over-year basis. And there we expect just a little bit of a slowing in the year-over-year growth rate there just below 2%.
Glaser: So the expectation is that jobs growth will remain steady, and we look at other parts of the economy, things like autos, looks like we might be plateauing there?
Johnson: Yeah. I think we talked about the autos and maybe we were a little premature a year ago saying that we thought that industry was plateauing, but it clearly has now. The job--or the auto sales numbers for July were pretty much flat with July of a year ago despite some heftier incentives. Even if you look at the full seven months of the year, maybe we're up 1% year over year versus we've typically seen something closer to 5%. So clearly that's gonna have a negative impact on GDP that we're gonna have to make up somewhere, but there's clearly an issue in the auto sector where we've got some saturation issues, we're kind of back to our old highs in terms of production, and cars are lasting longer. And so I think it's gonna be hard to get a lot of juice out of that sector anymore. We're gonna have to find something else to get a little juice out of.
Glaser: And finally we could take a brief look at what's happening outside of the United States. Are there signs the rest of the global economy is holding up?
Johnson: Despite Brexit, there were some surprisingly positive numbers overseas particularly in China, where we saw their PMI number cross back over 50 again. First time it's been over 50--that separates growth from decline--first time since February of 2015. So that was certainly a positive number there. It was rather broad-based in terms of orders and current productions, so that was all great news there. And so that's a positive sign for a country that's seen its manufacturing index go down for some time to move back in the other direction. And we're surprised the markets have perhaps acted more positively relative to that announcement. And even in Europe the data was still pretty high. It was off from an abnormally strong June, but it's still at 52. It was well above 50 and so it kind of goes to show despite the Brexit, this is the data that comes after all of that, that people are still hanging in there and not packing just yet.
Glaser: Bob, thanks for the update today.
Johnson: Thank you.
Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.
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