'Boring' Jobs Report May Be New Normal

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. The U.S. economy added 156,000 jobs in September. That was slightly below consensus estimates, but slightly above where our Bob Johnson, who's director of economic analysis, thought. I'm here with him today to see exactly why we split this difference. Bob, thanks for joining me.

Bob Johnson: Great to be here today.

Glaser: So, you described this report to me before we started as kind of boring. Why wasn't there anything that jumped off the page to you this month? 

Johnson: I think we've settled into a low-growth pattern here. And with the type of GDP growth that we have, job growth should be in this 150,000-175,000 range. And now, we've had a couple of months in a row of that kind of level. And we've brought the averages back down to something in that neighborhood, so maybe the big adjustments are over. And the report was really kind of boring.

Glaser: Let's look at this from a month-to-month basis, what kind of growth are we seeing? 

Johnson: Well, on a month-to-month, we saw a slight improvement with that 167,000 jobs on the private sector. We lost a little bit on the government sector. So on a month-to-month, I really do like to look at the private sector numbers, whether we... The teacher number is always a little bit seasonally affected, so it's not a very valid number to be looking at and making decisions on. Month-to-month it was a little bit better on the private sector in terms of numbers of people. 

Now, remember that the number of people is only a part of the equation. Actually a relatively smaller part of it. It's the hours worked and the wages that are the two bigger components. And hours worked after hitting a recovery low, did better again here in September. So that was really a big relief to us, because we hit a recovery low in the month of August. And that was really scary, because people are hanging on to employees, but they aren't working them as many hours. And that's as devastating to income growth as the number of people working.

So I always look closely at that. We did get a little better month-to-month on that, and then we look at wages. And again, the growth there was really, very good on a month-to-month basis. Up over 0.2% on a single month, which annualizes to about what the year-over-year rate comes in at, which is about 2.6%, which is a relatively high number and enough to kind of be scary for services inflation.

Glaser: So if we're seeing decent growth in wages year-over-year, what about this number of people working or hours worked? They're still slower.

Johnson: Yep, we continue to slow in terms of number of people working. The growth rate has now in total come down to about 1.7%. We were kind of up in the 2.1%, 2.2% at the peak. So clearly, employment slowed along with GDP growth. And also, the number of hours worked while they were better month-to-month, were still down year-over-year about one tenth of an hour, which is a big deal. And again, the numbers in the couple of months ahead are going to be tough comparisons, both for employment levels and those hours-worked data, because this was a really strong period a year ago. So we'll probably get a little bit worse on those figures in the months ahead.

Glaser: Let's take a look at some individual sectors. You mentioned teacher employment had an impact on the government number. In the private sector, what was holding up a little bit better? 

Johnson: Some of the things that did well, temp employment added about 23,000 jobs. And we always think mixed about that. I mean, it tends to be a better leading indicator of employment, so we like to see that number relatively strong. It had been negative a couple of times in the last few months, so it was good to see it from that standpoint. But then, it also means that businesses haven't got the confidence to go out and hire full-time people. It's kind of a mixed bag on that, but that's where one of the bigger numbers...

Food service and accommodation was up. Which was a big surprise to us, because we've been hearing all over about restaurants suffering and traffic's been poor, and more competition as grocery prices come down and meat prices come down. That people aren't going out as much. So we were really surprised to see that number up, and it was a contributor. The really big, positive number was construction for us. We've had a few weak months there in construction. And that directly translates into construction spending, because labor's a big part of construction, obviously.

So that means that maybe some of the investment numbers will look a little bit better in the month of September, investment in housing and in commercial buildings, as that employment level had a nice pickup, 23,000 jobs added. And one other big positive--mining no longer took off jobs. It made no change one way or the other, which is great news because we've been losing through kind of water torture 10,000 jobs every month for almost two years now. So it was good to see that number back to flat, and that helped the headline number.

Glaser: On the negative side was healthcare, and you think that could remain weak for some time. 

Johnson: Yeah. I'm a little bit worried about that number. We only added about 20,000 healthcare jobs. In a typical month we might add something closer to 40,000 to 50,000. And when things were really hot, we added 60,000 or 70,000 jobs in a month. And what's happened there is all of the things that happened with the Affordable Care Act, and all the new people that were brought in under the Medicaid program and so forth, those people are all in. The Medicaid enrollees aren't really growing very fast anymore, and so the employment numbers aren't growing as fast as they once were. And I think that may be an ongoing trend. And especially as businesses focus on some cost-cutting a little bit at the same time as enrollees aren't growing. Again, I'm a little fearful that that's going to be one of the things that helps hold that job growth number down to 150,000 or so in the months ahead.

Glaser: And retail didn't look great either.

Johnson: No. But, it hasn't for many months. Retail has certainly been battling hard with the Amazons of the world. And the employment growth has been slow. But, it's been slowing over the last two years. The change in the recent months is now that it's coming out of hours. The hours are really down a fair amount, a full hour on a year-over-year basis in terms of hours worked. So that's a huge impact compared to say, employment growth.

Glaser: That unemployment rate ticked up slightly to 5%. Is this a sign that the economy's kind of enticing more people to enter the job market? 

Johnson: Absolutely; the number of people looking for work was up, the participation rate, that means that people that were either working or looking for work, was up one tenth in the month. Again, not a statistically huge number, but again, it indicates that people are feeling--either because of the minimum wage or because wages in general are higher--it's enticing more people into the workforce. And we'll have to do a little bit more analysis, see how much of that's people coming in at the minimum wage and how many of it's older people staying in the workforce longer. But it's great to see and kind of unexpected.

Glaser: So it's a bit of a boring report like this... Does this mean a November increase from the Fed is basically 100% off the table now and we're still looking to December? 

Johnson: I think so. I think that we're going to have to see a little bit more data. I don't think there's anything in here, other than maybe the wage inflation, that would move them any way or another. I think the employment report looked a little bit soft and I think if there are people thinking it's going to rebound or something...I don't think it's doing that. And I think that the Fed won't have a reason to move on this. Now, if there's something else that gets really strong or really weak, then they may be forced to act. But this doesn't appear to me to be a deal changer that says "Aha! Now we're going to do it."

Glaser: Bob, as always, thanks for your analysis.

Johnson: Thank you.

Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.