Jobs Picture Not as Gloomy as It Looks
Though the headline May employment number was disappointing, ISM employment, job opening, and small-business hiring data paint a picture of continuing, if gradual, improvement.
Jason Stipp: I'm Jason Stipp with Morningstar. Last Friday's unemployment report was disappointing on the face of it, but putting that number into context and digging a little deeper to look at some other employment indicators presents a far more interesting and richer picture on the employment situation.
Here with me to talk about some of those of details is Morningstar's Bob Johnson. He is associate director of economic analysis. Thanks for joining me Bob.
Robert Johnson: Great to be here.
Stipp: So first things first. We did have a fuller report on the employment situation last week.
Stipp: But I just want to emphasize the importance of putting this number into context. Can you tell us a little bit about how you think of that number now that you've had a few days to reflect?
Johnson: Sure. I think that when you look at the number, certainly, after a 290,000 some to have something or 224,000 if you take out the census and then have it go down to 41,000, it was disappointing to people, but: A. the number is growth. We actually had employment growth. We didn't turn the boat around and sink unemployment or employment.
And then other thing is, I think you really need to look at those two months kind of combined and put the 290,000 together with maybe the 40,000, and say, you know, the right number was probably something like a 140,000, 150,000, if you average the two months out a little bit. And I think that's a better representation of where we are at.
Stipp: And these numbers, there is a margin of error around them. I mean, we look at them, we get them every month, and it seems like you get the full picture there, but they are often revised later as well.
Johnson: Yep. They are revised and even still they may not be perfect. There is a large margin of error. These are done by surveys. They don't count every single person. They ask so many households if you are working or not. And so, obviously, they are subject to a bunch of error. That 41,000, it could have – that number could be as far off as we could have actually lost jobs last month or could be on the other side, it could have been the number that everybody was hoping for--but still in the confidence range.
Stipp: Sure, but important not to put too much emphasis on that one number...
Johnson: So, you know, we got all wound up on that number, and I was just as guilty as the next guy for promoting that number [beforehand], it looked good, it looked like it was in the bag, and I think everybody got so hung up on it, and you can't ever get hung up on one number.
Stipp: Sure. And if we do want to average those two, and we saw, if we do want to maybe estimate that, there could be over those two months a 120,000-140,000 jobs added, that's actually consistent with maybe some other data that you've seen that sort of implies a slow, but positive recovery here?
Johnson: Yeah. And let me touch on that a little bit. I mean, seeing the 290,000 that one month, I mean, I may have thought we could have done 300,000-400,000 going forward. I think the number is more realistically 200,000, and maybe we can get to 300,000 in a couple of good months. So I have brought my thoughts down a little bit just to be entirely up front about that, but these surveys now are pretty consistent with those kind of 200,000 numbers that are out there.
The ISM purchasing manager data, those are the surveys I love, the overall survey I have talked about it and written about it many times, but there is also a sector in there where they look at employment, and ask, are you hiring or firing more people? And that index struck another new high for this recovery last month, and had a nice improvement over the prior month. So that's consistent with growth, not massive growth, but nice growth.
And then also, I always look at the manufacturing side, but even on the ISM numbers for the non-manufacturing, on the service sector, we are up over 50%. That means more than half of people were thinking of hiring than firing. That number was positive for the first time in this recovery. So the manufacturing is beginning to pull through the service jobs. We are seeing the train work the way it usually does, which is good news.
Stipp: You also had some information from temporary employment services on manpower, which tends to also support this thesis of a generally gradual, but positive recovery.
Johnson: Yes, absolutely. Manpower did their numbers both U.S. and internationally. And domestically, we had a small tick-up in the number for the third quarter hiring plans versus the second, not huge, something that's consistent with growth, but not massive growth. So that was good news.
And by the way, that's also kind of supportive of a Midwestern or of manufacturing deal, where manufacturing is predominantly in the Midwest, and the numbers there in the Midwest were the best of the Manpower numbers.
The worldwide numbers were also excellent. And I forget, now, I think 31 of the 36 countries they had surveyed showed improving hiring picture versus being almost all negative a year ago.
Stipp: Certainly, very important for Manpower's business. They are trying to get this right; they are not just running this survey for informational purposes, so it's positive to see that information come out of them.
You know, another thing I know that you look at is job openings, and we actually also saw a continuation of the good trend there.
What did you see on job openings?
Johnson: Yes. The Labor Department this week reported on job openings, the number of positions that are open, and that number moved up to 3.1 million. To put that in some perspective, at the low we were about 2.4 million, so we are up nicely from that, but at a peak, normal, I mean, at a really great time, we might be at 4 million, 4.5 million. So we've got a long ways to go, but, we have made some recovery, and we are up from the prior month nicely and on an accelerating basis, so that was a good number to see.
Stipp: And I think that sort of underscores the point that that number you get, that job growth number is a net number. So even though, you know, we are seeing a certain number of new net jobs added, there actually are more job openings out there. Maybe some people are letting people go, but that happens in good economies as well.
Stipp: So, you just have to think that job openings are getting higher, eventually that's going to lead to net job growth as well.
So, the last thing that you were keeping track of is small business and hiring trends there, which a lot of folks say are real growth engine of the economy in some ways. So, tell us about what you see in small business?
Johnson: The small business – the National Federation, and we look at the data they provide every month, and their overall index, again, was up when it was reported a couple of days ago. And the employment part of that also flipped to the positive side, where people were hiring more than they were firing for the first time in this recovery, and I think it was the first time in 19 months, they have seen an improvement in that index.
So, the small businesses are beginning to turn and our pickup truck index, we joke about, I mean it's not how we manage our business or think about it, but it's interesting to see that pickup truck sales continue to go up as well, which is a good sign that small businesses are seeing better things.
Jason Stipp does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.