Jason Stipp: I'm Jason Stipp for Morningstar. All eyes are on unemployment data this week; it's been one of those lagging indicators that we've anxiously watched as some other indicators have shown improvement over the last few weeks and months.
Here with me today to talk about some of that employment data and the expectations for Friday's jobs report from the government are Vishnu Lekraj--he's an equity analyst for the jobs sector at Morningstart.com--and Bob Johnson, he's our associate director for economic analysis. Thanks for joining me, guys.
Bob Johnson: Thank you.
Vishnu Lekraj: Thanks.
Stipp: So we saw on Wednesday the ADP report. It showed we are still losing jobs from the market, about 370,000 jobs were lost. We know that employment historically has been a lagging indicator, and it takes some time to see some improvement there. But yet what we've been saying in the last several months is, "It's less bad. It's less bad." We have seen some improvement in the decline, but we're still seeing jobs lost at the end of the day when those reports come out.
So let me just throw out the question to you, Vishnu: why are jobs still falling off when it seems like the economy is improving in some other areas?
Lekraj: Well, the economy is improving, but I don't think we've seen a sustained material growth factor within the economy as of yet. I'll leave that to Bob to let you know, or tell us when that's going to happen. But companies are still seeing deep revenue retrenchments in double-digit territory.
In order to keep profits, in order to keep investors happy, they're going to have to cut costs, and some of these cost-cutting efforts are going to include job losses. Including job losses and all of that is the reason why we're seeing an increase, or a steady decline in the amount of jobs in the economy.
Stipp: Bob, there has been some dramatic improvement. I mean, we're still talking negative numbers here, but can you give me a sense of how much better has it gotten since the worst that we saw?
Johnson: Obviously we lost more than 700,000 jobs back early this year, in the beginning part of the year in a given month. And now we're probably talking tomorrow something like minus 350,000 on the jobs numbers.
So some pretty dramatic improvement from what was a very bad situation. Obviously I'd like to see even more improvement in that number, but we'll end up with somewhere between minus 300,000 and minus 350,000 tomorrow on the overall monthly employment numbers.
Stipp: Speaking of the improvement, I think the thing that people are looking for now is the pace of improvement, how much longer do we have to wait to see some of these numbers start to tick up again or some stabilization.
Has the pace of the turnaround, the pace of the improvement met your expectations? Has it been slower? What are you looking for to really see that we're going to start to see an upturn?
Johnson: I think the improvement so far as been glacial, because I've been sitting right here watching every week and dreading [the initial claims numbers] every Thursday morning. But if you look at typical recessions, it does take a while for these numbers to come back.
And the one thing I will say that makes me optimistic that maybe the pace will pick up just a little bit here is that we lost the jobs faster in this recession than almost any other recession, and typically when that happens the jobs come back faster. So I'm a little bit optimistic that we can pick up the pace now.
To me right now it seems a little glacial, but I think we can get better here.
Stipp: What data points are you looking at, Vishnu, to sort of gauge how quickly we might be recovering and when things might turn around?
Lekraj: Right. Initial claims is a big one. And that, again, has improved dramatically over the past few months. Also the three-month moving average in non-farm jobs. That number has also improved.
But in particular, I like to look at the temporary help sector. That number has improved. It was a little bit of a mixed bag over the past couple of months, we saw an improvement and a decline last month. I'm expecting, and I'm looking forward to hopefully, an improvement coming up this next month.
As far as the pace of the recovery, as you all were saying, the recovery I believe in on pace with what I expected, in terms of a slowly but surely material increase over the jobs numbers. That's what it's been in the past, and I expect it to continue.
I think the shock of what happened over the past two years has been traumatic to the business environment. Businesses are very cautious, and rightly so, with what they want to do in the future. I think that might [continue to] contribute to a slower pace in job recovery.
Stipp: So to wrap up, tomorrow the unemployment numbers for July will come out from the government. What are you guys expecting to see? What are the data points that you're going to be keying in on?
Johnson: Besides the raw number that I talked about, maybe around a job loss of 300,000 to 350,000, what I'll be looking at is the composition of that. Manufacturing has been on its tail for many quarters here. I'm expecting maybe this quarter, based on the some of the purchasing manager surveys, the employment in the manufacturing sector may finally be kind of less bad than it's been in the past. Maybe considerably better.
Construction will probably be an interesting one that could go either way--that's been very bad. Government last month was a shocker. I mean, here you hear about all the stimulus plans, [but] the government jobs were actually down, and down big last month. I'm thinking that may flip around this time. That may be the biggest surprise. If I'm wrong, it's because that number's gotten better than I expected.
Stipp: Interesting. Vishnu, what are you going to be looking for tomorrow?
Lekraj: I'd like to echo what Bob said. I think job losses will be in the range of 350,000 to 395,000. Just a little bit higher than what he expects. Also the unemployment rate, I expect it to increase 10 to 20 basis points, 9.6%, 9.7%, within that range.
I'm going to look also, like he said, at the federal government. Big surprise. You should never lower the employment level during a recession. I'm also going to look at the three indicators as I mentioned before: non-farm jobs, temporary employment, and I'm also going to look the shadow unemployment rate, the U6 rate, which captures part-time workers who want to work full-time.
If that rate increases above and beyond the headline unemployment rate, that can spell trouble. But that hasn't happened over the past quarter, and hopefully that'll sustain.
Stipp: Great. Thanks for joining me today, guys. I'll be seeing you again tomorrow. I look forward to your insights on the actual report when it comes out tomorrow morning.
Johnson: Thank you.
Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.
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