MorningStar.com

The Critical Drivers in Friday's Job Report

Jason Stipp: (Site Editor, MorningStar.com) I’m Jason Stipp for MorningStar should
we brace for disappointment in Friday’s job report. Here with me to offer
their take is MorningStar’s Vishnu Lekraj, he’s an equity analyst covering
the Employment Sector and Bob Johnson Director of Economic Analysis.
Thanks for joining me guys.

Bob Johnson: (Director of Economic Analysis, MorningStar) Great to be here.

Jason: We got the ADP report on Wednesday and it said that the numbers. It was
down 34,000 private sector jobs lost in September and what it said is that
this confirms a pause in the economic recovery already evident in other
data, Vishnu do you agree with that?

Vishnu Lekraj: (Equity Analyst, MorningStar) I mean it does suggest a slow down
in terms of growth but I don’t believe it’s as bad as what 80 Ps report isn’t
making out to be. Last month the reporter that we lost 10,000 private
sector jobs. They had to revise that to positive 10,000 this month.
Additionally, I’ve looked at some of other reports one in particularly for
man power. I suggest that businesses are looking to hire I’ll be it slowly
over the fourth quarter and that’s what I expect going forward.
Additionally some companies reported over the past couple of weeks pay
checks in particular and they suggested that everything is stabilized.
They’ve seen some positive growth and all other metrics and they expect
something— expect some improvement here over the next three or 4
quarters.

Bob: I was surprised to see the negative number out of 80 p this morning to be
honest on Wednesday to be honest with you and I think the reason that I’m
surprised is initial claims were down month over month for the
measurement period that they looked at so that kind of drives how many
are laid off and then on the hiring side the certainly the ISM purchasing
managers data seem to indicate that there was employment both on the
manufacturing side which has been for some time but for the first time
relatively nice growth on the services side which has been a real lag at this
time so I’m a little bit surprised that this month looks worse than the
previous month.

Jason: A follow up question for you on that friend because the ADP report
showed that this service sector added 6,000 jobs but it was the good
producing sector that was responsible for that overall headline loss losing
45,000 jobs in September. Recently, Eric Landry who covers our
industrials did an outlook and he said that there could be some slow down
in manufacturing and this sort of an intermediate term. Is that bad news or
are you not expecting to see any jobs coming out of manufacturing for a
while?

Bob: I think we’re going to be okay on the manufacturing number on the
government report on Friday and maybe for the rest of the year I think
especially among manufacturers serving the merging markets. A lot of
them are kind of gearing up for a little bit stronger second house so I don’t
think manufacturing is going to fall off the cliff but I mean some of the
domestic oriented manufacturing statistics are looking a little weaker and
that’s not atypical of a recovery. You get this great boom off the bottom in
manufacturing and then you kind of level out and services become more
important and so this kind of fits that pattern.

Jason: Vishnu when you’re looking at where we might be adding jobs in the
future what areas are you focused on and what do you think might drive
some of the growth?

Vishnu: One key area over the short term is going to be the retail sector. A lot of
data came out of that all reports not a company state they’re going to hire
a lot more this time around than last year. I spoke to somebody retail guys
like cover the retail sector for our department and they expressed me that
they’ve heard the same thing and they expect some more a booster hire so
retail is going to be one big key driver I think over the short term.

Jason: And are you expecting to see you know any meaningful improvement this
year or you’ll think you’ll have to wait.

Vishnu: I have been asked this question a couple of times over the past couple of
weeks and what I believe is going to be slow growth for this year at least. I
don’t expect anything material until probably the middle of 2011.

Jason: Sure, Bob based on what we saw from the ADP report but also maybe
more importantly the other data indicators that you look at what are you
expecting to see on Friday and how important is that report?

Bob: I think it’s increasingly important to look at employment. You know many
times that I have said employment is a laggard. I don’t really care and let’s
look at some of the other data. Now we’ve got to the point in the cycle
where the consumer is the most important thing. The nice balance in
inventories, the increase in exports, investment spending going on all of
those kind of things that kind of provided a boost all in slightly different
quarters and I think we still have some help from those factors for another
quarter, maybe but then after that we need the consumers pending to grow
which triggers everything else down the chain if you will. Everything, you
don’t build inventories for the fun of it. You don’t invest unless you think
the economy is getting better and consumer is going to spend more so I’m
very focused on the consumer right now and the best way to determine
what the consumer is going to do is what his incomes are doing so I’m
watching Friday’s report. I need a combination of decent employment
growth, hourly wage growth and the number of hours work and those
three combined kind of give you a great idea of what wages will be and
it’s putting those three together. Okay not only all three and be perfect but
I need some combinations of them to look good to boost consumer
incomes and that will drive the economy over the next six months.

Jason: So what are you when you are looking some of the headline numbers
given that those important things that you’re looking at do you expect to
see Private Sector Growth on Friday?

Bob: I think Private Sector will grow probably somewhere in the neighborhood
of a 100,000 jobs on the private sector’s side and overall I think we’ll be
back at just over flat. The headline number has been negative for the past
couple months because of the census data and it will be a drag again this
time but I think we may make it out of the positive side of job growth on
Friday.

Jason: Because you know you’re expecting to see positive growth at maybe
contrary to what we saw in ADP when we get Friday’s government
report?

Vishnu: Yes I think private sector is going to grow between 50,000 and 75,000
with that census is going to be down so you like bob is going to be pretty
much close fly. There are two factors or three factors I believe have to be
key and people have to watch for the evolving market. Number one
business spending I believe has some drive this recovery. This is a flusher
cash and the consumer is not spending as robust is with like. It has been
pretty much anemic growth over the past few quarters. Additional to that
government spending has been pretty bad, both local and federal so with
those two taken out I believe spending has to start kicking in here in order
for us to see some good material growth.

Bob: And we did have some good business spending last quarter and the second
quarter was obviously one of the key drivers and I’m optimistic for the
next month or the quarter or two as well on that front.

Vishnu: Well there’s a lot of potential there, there’s a lot of cash in the system,
budgets are going to start to kick in after the turn of the year.

Jason: Well guys thanks so much for your insights we look forward to checking
with you on Friday to get your take on the actual report.

Vishnu: Thank you.

Bob: Thank you.

Jason: For Morning Stipp, thanks for watching.