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An Upbeat Jobs Report to Ring in the New Year?

Data suggest that Friday's employment report could yield a better-than-expected headline number thanks in part to a spike in hiring at year-end, says Morningstar's Bob Johnson.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. I'm here today with Bob Johnson--he's our director of economic analysis--to get a preview of Friday's jobs report. Bob, thanks for joining me.

Bob Johnson: Great to be here today.

Glaser: We got a little bit of preview of the jobs numbers from ADP. Their numbers were better than expected. Does this kind of give you some hope that maybe Friday's numbers will look a little bit better? 

Johnson: It does--and recall these numbers never do match very well. They've sometimes even gone in opposite directions. But it is a useful because ADP obviously has a lot of payroll clients and has some knowledge of the data, so we feel that it's at least worth looking at. The number today, at 257,000 jobs added, was a surprise to the upside. They've been relatively conservative in their estimates for most of the year, and this is the best number that came out so far this year. In fact, the next-highest number was last December when the number was 275,000, according to them.

Glaser: Does this make you think that maybe there was a surge of hiring at the end of the year and that people were trying to use up their budgets? Are we seeing that? 

Johnson: I think there may be was a little of that. Certainly, we saw a ton of it last year in November and December, when we saw the 400,000-plus November and even a pretty good December. This year, we didn't see that surge. We had kind of an average November number. I'm just wondering if maybe, as we closed out the year, that we saw a small surge--maybe that's what the ADP numbers are telling us. Now, it is a little lower than last year's number but not by a lot. Remember that last year the official government report added more than 300,000 jobs in the month of December. So, given that the numbers from ADP were relatively similar in both years, I'd say that 300,000 is at least a possibility.


Glaser: But your forecast is not for 300,000.

Johnson: No--I'm thinking more like 230,000 to 250,000. Before this report, I probably would have said 200,000 to 210,000, but looking back over the data and seeing the spike at the end of last year and looking at the ADP numbers and some of the category data, it seems to suggest to me that it might be a better-than-expected report. So, I'm thinking now maybe 230,000 or 240,000 for the month of December when the report comes out on Friday.

Glaser: Let's take a look at where these jobs were added according to ADP. Across small, medium, and large businesses, who was hiring in the month? 

Johnson: Both ends did well. Of course, it's supposed to be seasonally adjusted, but the large kind of usually does a little bit better toward the end of the year because those are the companies that tend to have more use-it-or-lose-it budgets, and they want to get people on board before that. So, the large was strong and the small was strong--not the very smallest category (the zero to 10) but the next category up was the particularly strong one in small. Midsize probably did two thirds as well as the other two categories, so not quite as well.

Glaser: Across industries, where were the strengths? 

Johnson: Well, the real strength was on the services side, as it has been for many, many months. There, the particularly good news was in professional and business services. That's a category we love to see do well because it's a relatively high-paying category. ADP says they had 66,000 jobs added in December, which is a pretty good number. It was kind of lackluster in ADP's eyes the month before, so we're glad those that kind of picking back up again. That was probably the biggest number in the report. The finance sector has been doing well for a good part of the year, and they continued that with 13,000 jobs added. In retail, given the sloppy Christmas data, we were a little fearful there would be a lot of layoffs there--maybe they'll wait until January to do that--but the employment numbers out of retail and trade were up about 30,000, which is pretty typical for the ADP report. So, no big change there.

Construction remained relatively strong--24,000 jobs added. And manufacturing remains in the dirt with just 2,000 jobs added. But the one thing I would add on manufacturing: You hear so many stories that it ought to make you think that manufacturing is totally falling apart--that it's hopeless and that there's no activity there. For all of that, we still added 2,000 jobs in the manufacturing sector--at least according to ADP. So, that's kind of a sure sign to me that maybe things aren't quite as bad as in manufacturing as all the press is making it out to be.

Glaser: How much of that do you think is driven by the auto industry, given that they just had a record year in terms of production? 

Johnson: Well, I think they certainly had a great year in terms of sales, and we'll see the production numbers in a couple of weeks and get a handle on those. But certainly auto is doing well and has meant better manufacturing in general. That drives a lot of other subcomponents higher. So, that's certainly been one of the real bright spots in manufacturing. For the full year, auto sales were up something like 5.7%, which is far better than the 3% that we had been thinking at the beginning of the year. So, it's certainly a good number. Exactly when all of those autos from our great November and December get produced remains to be seen.

Glaser: For the government report, obviously people look at the number of jobs added and the unemployment rate but also wage growth. What are your expectations for wage-growth numbers that we're going to see on Friday?

Johnson: Well, I like to look at the number year over year and usually as an average. This number tends to jump a whole bunch in one month and then sit for a couple of months, so it's kind of a confusing number sometimes to look at. So, don't be surprised if the number goes down a penny or two--it doesn't make any difference. What counts is how it compares to a year ago--and probably averaged at that. We've been over 2% for a few months in a row. I'd expect something at around 2% again--year over year--in December. If it slipped a little lower, which could happen--it could be 1.5% or 1.8%--[I wouldn't worry]. If the number was negative year over year, then that might be the one case where I'd worry just a little bit more.

Glaser: Bob, thanks for your preview today.

Johnson: Thank you.

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