Video Transcript
Jeremy Glaser: For Morningstar, I’m Jeremy Glaser. After November’s much-better-than-expected employment report, all eyes are on December’s report. I’m here with Bob Johnson--he is our director of economic analysis--for his preview.
Bob, thanks for joining me.
Bob Johnson: Great to be here today.
Glaser: So, you mentioned that this December report is probably going to be more valuable than usual or maybe more looked at than usual. Why is this such an important report?
Johnson: Well, I usually poo-poo this report just a little bit because it’s highly volatile from month to month. There are a lot of seasonal factors, and there are a lot of revisions to the numbers. So, I’m always very cautious about the report.
Secondarily--and maybe more importantly--employment always lags everything else. What usually happens is the consumer spending is on the front end of the train. They have to buy more things first, and then first retailers draw down their inventories as do manufacturers. And then eventually when it’s just too good to go anymore, they have to hire people for their factories to produce more. So, it’s the last thing that happens. What you really need to watch is the consumer stuff. But a lot of people, because they touch employment every day--everybody has got a job or has a friend who’s got a job or trying to get a job--everybody watches this data like a hawk. But it really is a lagging indicator usually.
Glaser: But if it is lagging, then why do we care about December? Is it just to see if we can continue November’s trend?
Johnson: I think the one thing that I’m watching this time is that the GDP numbers have been unusually good for a couple of quarters in a row, and some of that was obviously bounceback from a really bad winter. But it’s been a little bit hard to figure out what the core growth has been. And certainly, the 5% GDP number we saw in the third quarter, in my opinion, looks unsustainable. But to give us clues at least [as to whether] that number is 4% or is it 2%, the employment numbers may give us a little hint about the real underlying strength of the economy. It tosses out some of the weird export stuff and some of the inventory adjustments that mess up the GDP calculation. So, it may give us a little bit better clue about what the underlying strength of the equation is. If we have another 300,000-plus month, then it means that the 5% was the real deal. If it’s under 150,000, [that suggests] we may even have a problem.
Glaser: We did get a little bit of data on employment from ADP in the middle of this week. They said 241,000 private-sector jobs added and revised the November numbers up. Does this point to potentially this report on Friday looking reasonably strong?
Johnson: You know, the ADP’s track record lately has been bad. It’s never been real good, and it’s getting worse. Last month, they said it was going to be just over 200,000 jobs added, and we had that blowout 320,000 month number on the official data a couple of days later. So, they really, really blew that one. Now, they’ve revised up the old November data, so it doesn’t look quite so bad. But they are still off the mark. So, I think their data has shown relatively consistent employment growth at about 220,000 or 230,000 jobs added. And that would seem to suggest to me that maybe the government number being so far off of that--especially just because it was for one month--that maybe we pull back here.
Glaser: So, when you look at that ADP report, what stands out to you? Are there certain segments of the economy that are hiring more workers than you would anticipate?
Johnson: I think the key thing that’s probably jumped out at me was the small-business sector added a good number of the jobs that were added this time around. It was still relatively balanced, but we had over 100,000 workers added on the small-business side, and that’s been really slow in this recovery. It’s really kind of held us back. Financing has been tough on small businesses, and a lot of small businesses were housing-related. Consequently, we’ve had a pretty tough go of it in small businesses, and the number looked better, which is good because it also fits with the small-business sentiment that we get from the National Federation of Independent Businesses, which made a new recovery high last time around. This just validated that that was a good metric to be watching--that small-business employment does indeed look a little bit better.
Glaser: Looking at the kinds of jobs that ADP says are being added, are they high-paying jobs? Do you think we’re going to see some wage growth or do they tend to be lower-paying ones?
Johnson: Well, the best category they had this time was professional and business services, which they haven’t been particularly good at forecasting. But they had about almost 70,000 jobs added in that sector, and that’s a pretty good-paying sector. Now, it includes some temporary work, so people can’t depend on that forever. But it is still a relatively high-paying category, so we’re glad to see that. And when we look at the hourly wage data and so forth on Friday, that could be one of the helps if indeed that turns out to be a strong sector.
Glaser: The consensus for the government report on Friday is around 225,000 jobs added. Where do you think we’re going to shake out?
Johnson: You know what? I’m going to go conservative on this one. I’m going to say 150,000 to 200,000 jobs added, because I think if you balance out the middle of that range with the 322,000 we had added in November, that would bring this back to the low to mid-200,000 range that has been so typical in the past. Again, that number might scare somebody on a bad day; but if you average the two months together, I think that would get you pretty close. Certainly, the initial claims numbers haven’t gotten any better, haven’t gotten any worse. So, that would argue for, still, a relatively higher number than that. But that one 322,000 number just kind of came out of nowhere. And it could also be that they revise the November number down sharply, but net I think we'll get 150,000 to 200,000 jobs.
Glaser: So, don’t be too worried if that number is much lower than maybe some are expecting?
Johnson: Yeah. And one of the other things to keep in mind is that it seems to be seasonal patterns that change in a hurry and then endure for two or three years that the surveys don’t pick up well. Last December, we only added 83,000 jobs. It was the worst month of the year. So, I’m thinking that there might be something they are measuring--the way they are putting the seasonals on the December number--that may make it look artificially low. Again, it was funny--I was looking back over the report from last year and the 83,000 that we added in December. The market actually went up that day because people thought maybe the Fed won’t tighten after all. So, it’s amazing how people react to even what would seemingly be bad news.
Glaser: Bob, thanks for your preview. I’m looking forward to getting your take on Friday.
Johnson: Thank you.
Glaser: For Morningstar, I’m Jeremy Glaser. Thanks for watching.
