For Jobs, We Expect This July to Be Cooler Than Last

Jeremy Glaser: From Morningstar, I'm Jeremy Glaser. July is often a good month for jobs, but our director of economic analysis, Bob Johnson, thinks we could be a little bit light in 2017. He's here to tell us why.

Bob, thanks for joining me today.

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

Glaser: July 2016, 290,000 jobs added. We're not expecting, or you're not expecting anything close to that this year.

Johnson: No, I'm thinking probably about 155,000 private sector jobs, and 5,000 government jobs, for a total of about 160,000 jobs. I'm certainly not as optimistic as last year's really great number.

Glaser: So, this is below consensus, below what ADP said for private sector. They had 178,000 jobs added. Why do you think that it's going to be a little weaker? What sectors are going to be weighing on this?

Johnson: Well, I think there are a number of things at work here. I think the baseline number we usually start out with is about 180,000 jobs. That's kind of, if you average what's happened over the last year, you should be somewhere in that 180 to 190 to start with. So, that's usually why that consensus ends up where it does.

As I pull it apart by categories, I think there's a few things happening here. First of all, that wild 220 number we saw also in June of this year, a whole bunch of that related to government, local government hiring that will probably reverse itself here. But certainly, last month's private sector numbers were to look more like the 190,000, without that big government swing.

Again, that suggests that 180, 190,000 is a good base point to start from. Now, I think construction is going to be an issue. The construction numbers that were out this week for June were terrible. Yet hiring in June was relatively good. So I'm going to guess we're going to have to reverse some of that hiring here in July. I'm thinking that will be a relatively big swing factor month to month in what's there. I think that the construction jobs added will be just 5,000, which is well below its average, so that pulls the number down.

Also, healthcare just had a stunner number in June, adding almost 60,000 jobs in a single month. Given all that's going on in healthcare, that struck us as a bit of a surprise, and digging down, it turned out that big jump was largely due to social services, particularly daycare. It was one of the subcategories. Those are numbers that tend to also reverse themselves over time. I would think that we could be as much as 30,000 below, if we just get back to the normal one in healthcare growth. It could be even worse, if we happen to make up for some of that overage in the prior month.

But in any case, I'm thinking that would be a bit of a reduction, as much as 30,000 what we saw from the previous month, but we'll add a little back from professional business services, which has been a pretty steady eddy, adding, 30, 35,000 jobs a month, when you exclude temp help, and we had only a 20,000 month in June. So, I'd expect a 40,000 month there in professional and businesses services. So that will add back and make up for some of those negatives, but not all the way.

Again, I really am swimming up river here. I mean, Julys--the gods come together, and it seems to be a number that does better than some of the sum of the parts would suggest. But baseline, the way I look at it, that's what I'm expecting.

Glaser: Let's talk about wages. Do you think we're going to see signs that minimum wage laws are the things that are helping push wages higher?

Johnson: Well, we've always debated exactly what month we're going to see that impact, but close to a dozen states had minimum wage increases that went into effect July 1. Exactly what month, and what paycheck, and how they boost everybody's up and down the scales numbers are a little bit harder to gauge, and when that happens. I would think that the number is going to be prone to be better in July. We've seen that in the past. There's supposed to be seasonal adjustment factors for it, but last July was a relatively big month-to-month wage increase number in that .35% range, which annualizes to something over 4% to 5%.

Again, I would suspect that we'll have that again this year, and maybe they're even a few more increases. We'll have to see, but that should push the month-to-month number up. It might not do much to the year-to-year number, which is running about 2.5% or so, but given all the labor shortages, and given the minimum wage situation, I'm hopeful, but I've been hopeful for several months here. Some of the demographics of more younger workers are hurting the number too, but nevertheless, I think this could be a little bit of a catch up month. I've said this before, but I do think this will be one of the key numbers that people are looking at.

Glaser: Bob, thanks for the preview, and we'll talk to you on Friday, when the official report is released.

Johnson: Thank you.

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