Nothing to write home about in this job market

Aside from the monthly BLS data, other reports paint a more upbeat picture of the labour market, but we likely won't see near-term changes to current job growth, says Morningstar's Bob Johnson.

Jeremy Glaser 11 April, 2014 | 12:00PM Robert Johnson, CFA



Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. There is a lot of tension about last week's payrolls report from the Bureau of Labor Statistics, but it's not the only game in town when it comes to looking at the labor market. I'm here with Bob Johnson, our director of economic analysis, to look at some of these other indicators and what they're telling us.

Bob, thanks for joining me today.

Bob Johnson: Jeremy, it's great to be here today.

Glaser: Let's start with that big payroll report and the unemployment rate that obviously are a big focus for a lot of investors. Is there anything terribly surprising there or anything that concerns you?

Johnson: No, not at all. I think people are quipping, "Oh it was 190,000-something [jobs added in March], instead of 200,000."  And I think the number is not accurate enough, the way they collect the data to really say that it was really that much short or not. I'm really not too concerned about it. As you know, I like to look at that data year over year, and we continue to be, on a private-sector basis, at 2% year-over-year growth. Not accelerating. Not decelerating. Kind of that same, steady pace.

If I had to pick anything in the report that was a negative that I would be concerned about, it is the wage-growth data was very poor in the report. There was actually a small decrement in the wage amount, the average hourly wage. So that's a little disconcerting. Usually when labor markets start to tighten up and things get better, you can expect to see wages go up a little bit. And frankly, it didn't happen this time around. I don't know if it's just a monthly anomaly or what, but it was soft.

Glaser: Some people might be losing some ground there. Job openings, labour turnover, is another report that you look at. What do those numbers tell you?

Johnson: That was fresh out this week. They do come a little bit in arrears, it takes them a while to calculate it. The data we got this week were actually for February, but it's one of the best reports I've seen there for a long time. So many times I read the report and the data are basically unchanged from the previous month. And I think I just read that for the last 18 months, and this time around, it said there were 4.2 million job openings, up from something like 3.9 million the previous month. This is one of the largest increases we've seen in a long time month to month, but better than that, it's the highest number of job openings we've seen in six years. So we've really accelerated in that number.

Then a lot of people like to compare, not just the openings, but how many people are unemployed looking for a job. A year ago that number was as high as three unemployed people for each job opening out there. In January we were at 2.6 [people for job opening] and now this month we're at 2.5. I suppose in a really booming economy, we might be something around 2.2 or so, but we've made some pretty dramatic improvement there over the last year. So, that was another piece of very good news that people haven't talked about a lot.

Glaser: If we're seeing more of the job openings, how about the layoffs? Are we seeing a lot more of those, as well?

Johnson: The report that I like to look at there--besides the official government weekly unemployment report, which has been pretty steady-state--I do like to look at the Challenger, Gray & Christmas data because it looks ahead a little bit because it's announced layoffs, so that they may not actually turn up in the payroll data until little bit later.

That had a very interesting number. They reported for the whole first quarter what the total number of layoffs were; and that number for the first quarter at about 121,000 announced layoffs over the quarter was the lowest first-quarter number in 20 years. So that's a pretty dramatic number and a pretty dramatic statement about how low it had gotten, and the really good news about that was that it declined during each month of the quarter and closing at the lowest level of the quarter, which is always good for the following quarter, as well.

Again, it's kind of an interesting report because they talk a little bit about some of the trends by category there, which also kind of make it fun to talk about a little bit besides being a pretty good report this time around. They did talk about a few things that were a little worrisome. With the Affordable Care Act, there were a lot of people who actually worked for health-care companies, worked for phone companies, worked for the government to get people [to sign up for care]--people that couldn't get through or had questions or had to file something afterward or provide a piece of information. That all required a fair number of people, and those are starting to turn into layoffs.

We're seeing it first probably in some of the telecom call centers, though those are also being impacted by an interesting trend. As you and I have our smartphones for longer and longer, we need to consult help desks a lot less than we used to. The employment at both at stores and in call centers relative to some of the cellular services actually moved down a little bit, too. So that's another interesting trend that's out there.

Then the third one that we saw in the data was that the finance, and banking in particular, continued to kind of roll down. It finally looks like banks have gotten the idea, are consolidating some of the branches down a little bit, putting fewer people in the branch, and doing more automation for a check instead of us having to go to the bank. And we're seeing an ongoing trend of a downward employment in that industry now for a couple of quarters.

Glaser: How about the Institute for Supply Management data for March? This has an employment subindex that can give us a hint. What did that show?

Johnson: That was mixed this time. The ISM is data that goes through the purchasing managers and asks them, "Are you hiring more, or are you hiring less than you did the month before?" And along with a whole bunch of other things. It's mainly to get it at the headline thing of what's going on in manufacturing in general, but I'd like to drill down on the employment number. Manufacturing is always kind of important. It's not a huge sector, but it pays very well and sometimes can lead some of the other sectors. So that's why it's kind of fun to look at that one.

On the manufacturing side, the news was kind of mixed. We were at a 52 level--50 means [people's views on employment expansion and contraction are identical]; 52 means more we're seeing improved hiring. And that 52 went down to 51 this month. So it's still above that critical 50 level, but still not that big of change.

Glaser: That's for the manufacturing side. There's also a services index. What did that show?

Johnson: Yes, the ISM services index, which comes out three days later than the manufacturing data, actually covers a broader range of companies. And that report showed some pretty dramatic improvement. We moved from a level of 47, which was fairly negative for the prior month, all the way up to 53. So clearly there was a weather impact, and we got better in the month of March, which bodes well for the very large services sector that that number is now so far above 50.

Glaser: Looking at all of this data, do you think this is a sign that maybe the payroll report is kind of understating the strength of the labor market. What's your take on just the state of it, given this information?

Johnson: I'm still pretty much at that 2% private-sector growth rate in employment. I really don't see anything that's shaking me up too much about that. I do feel better about seeing the job openings report from Challenger, Gray.

Both reports were really, really optimistic, but you got to be careful. Remember the actual numbers that we saw last Friday weren't that great and the wage data certainly wasn't a positive. If we were really getting into a tight labor market, you would think that the wage numbers would start to be going up.

So when you balance them altogether, I think we've got this giant ocean liner that kind of moves along at 2% employment growth. Once in a while, one statistic is going to seem a little better than the other, but I really don't see anything to write home about.

Glaser: Bob, I appreciate your thoughts today.

Johnson: Great to be here.

Glaser: For Morningstar, I'm Jeremy Glaser.

About Author

Jeremy Glaser

Jeremy Glaser  Jeremy Glaser is the Markets Editor for