Retail, Food Service Woes Might Keep Jobs Numbers Down

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. Our director of economic analysis, Bob Johnson, thinks that Friday's jobs report might be below expectations, and he's here to tell us why. Bob, thanks for joining me.

Bob Johnson: It's great to be here today.

Glaser: Let's look ahead to this jobs report on Friday. You said we've added about 165,000 jobs or so, on average of the last year. Where do you think that we're going to be on Friday?

Johnson: Yeah, I think the 165 is probably a little bit more of the last six months. We're probably just a little higher on the 12 months, but 165,000 on the six months. I think we'll probably come in somewhere around 150,000 jobs added. That'd be a little better than we saw in May, which was only 138,000 jobs, but not nearly as optimistic as the consensus, which was thinking about 177,000 jobs to be added.

Glaser: Why are you less optimistic here?

Johnson: There's a few things going on there, but primarily, retail is my big concern, and probably food service would be the other. What's happening in retail is, we've been losing jobs. We had a couple of months of pretty extreme job losses. It kind of got back, so it wasn't as big an impact for a couple of months. I think we're due for another hit on that one again. I think retailers haven't improved their lot recently. I would suspect retail employment might be down 10,000 to 15,000 jobs again. That's one reason.

And clearly food service, restaurants, have really been losing out to grocery stores, as grocery store prices are down, and prices at restaurants are up. People have a little bit less time to go out. The restaurant numbers have not been good for the last three or four months. It really hasn't turned into any big disaster for the employment numbers. I'm thinking that this may be like retail, that we go along for five, six, seven months, where it looks a little bit out of whack, then all of a sudden it shows up. I think this may be one of the months where we have a poor restaurant number, and maybe that contributes to part of the disappointment potential, on Friday.

Glaser: Those are some of the areas where we could see weakness, but is there any areas you're looking at for a potential upside surprise?

Johnson: First of all, just generally, the month of June is a pretty good month for employment data. We're thinking that maybe there could be at least a little upside surprise, or potential for an upside surprise, just because June is usually a halfway decent month. That has something to be factored in. Last year was some 269,000 jobs in June. It's certainly a month where there can be upside surprises.

Where can they come from, is the next question. Certainly construction is one potential thing that's out there. Construction's been all over the board, small single-digit losses in jobs, to as much as 50,000, 60,000 added. We've put something in the middle, about 20,000 jobs added. If something really went right in construction, we could see a pop there that could add 30,000 above our expectations. That's certainly one area we'd look at.

Certainly amusement parks and that leisure category. The weather's been a little bit more favorable. Maybe there's some opportunity for those type of hires, and maybe that number's a little bit better than expected. I think those are probably the two categories that could look a little bit better on the top that would perhaps surprise me.

Glaser: Let's look at wage growth, something that's been very closely eyed. What are your expectations? Will fewer restaurant jobs or fewer retail jobs lead to higher wages?

Johnson: I think they may. Right now, the consensus is about 0.3% month-to-month gain in wages. That compares to 0.2 percent in the prior months, so some acceleration. I'm thinking we could do even better than that, maybe 0.4%, given that, as you mentioned, that I'm expecting restaurants and retail to be relatively weak sectors. Those are sectors that pay less than most others, so it tends to skew the averages a little bit.

That would be the primarily reason why we're thinking--and we've been, given the labor shortages, the numbers seemed a little low to us. Maybe this is the month it pops back a little bit. I would expect maybe a better number there.

Glaser: Speaking of the labor force, what will you be looking for, in terms of the unemployment rate or the participation rate, to give you some hints on what's happening there?

Johnson: I think that we'll probably stay at--even if the jobs report itself isn't wonderful--I think that the unemployment rate will remain relatively low at 4.3%. The reason we say that is that the number of native-born working-age people is actually shrinking right now. That makes it very hard, and I've got the feeling that immigration, the other source of more workers, is also probably under a little bit of pressure. You put those two together, the natural underlying pool to draw from is smaller. I would think that that might keep the unemployment rate down relatively low.

Again, if more people that weren't looking for jobs suddenly decide, "Let's participate, let's join the workforce. The wages are so great, I can't resist." But I just don't see that right now. I'm thinking that we'll stay at a relatively low rate, if anything, maybe even go down.

Glaser: Bob, thanks for your preview today.

Johnson: Thank you.

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