Can there be a jobless recovery in the US?

Last week's employment data from the United States sent markets tumbling as investors learned that 467,000 more people lost their jobs in June, bringing the nation's unemplyment rate to 9.5%. In this video, filmed in the United States last week, Morningstar's associate director of economic analysis, Bob Johnson, discusses the economic impact of such a report.

You can read a full transcript of the video below.

Full video transcript

Jeremy Glaser: I am Jeremy Glaser with Morningstar.com. This morning we learned that another 467,000 people lost their jobs this month and the unemployment rate crept up to 9.5%. I'm here with Associate Director of Economic Analysis, Bob Johnson, to discuss the impact that this has on the economy and potentially on stocks. Hi Bob, thanks for joining me.

Bob Johnson: Nice to be here.

Glaser: So, with another bad month of employment data, do you think this means that the talk of an economic recovery has been premature?

Johnson: Absolutely not. I think employment has always been a lagging indicator. It lags by four or five months. So, I have never been a big believer in watching this particular number as a key leading indicator. If you are going to look at employment numbers, the initial claims are the best number to take a look at.

Glaser: So, if you are looking at the initial claims numbers, which also came out this morning, do you think that that pointed to a recovery imminently?

Johnson: There is a glacial recovery going on in the initial claims numbers. And we were as high as 674,000. I think this morning we were down in the 610, 615 range. So, we have clearly come down 5, 6%, but we are not down a huge number from peak to trough here.

Glaser: So, I guess a big question is that with the employment situation looking pretty bad, I think the conventional wisdom is often that consumer spending is what drives us out of a recession. If people don't have jobs, how is that spending going to materialize and how are we going to break the recessionary cycle?

Johnson: Sure. Absolutely right, I mean people are very fearful. I get the question all the time, well Bob how can the economy get better, people are losing jobs, that means they lose income, they can spend less which means factories fire more people which leads to that whole vicious circle. And people forget that cycle does get broken every time, if it doesn't we would have zero employment today given the first time we started our way into a recession. A couple of things happen that usually pull us out.

The first is the people that do have jobs and keep in mind over 90% of the population that does have a job today decide to spend more of their hard earned dollars. And as the prices of housing and the prices of cars and other items in the economy come down, those people part with their money that they have been saving in the past.

Glaser: I think one of the things that was really striking to me about the employment report this morning was that the federal government actually lost workers in the month, which just seems with all the talk about the stimulus money, it seems mind boggling to me, do you think that is sustainable or...?

Johnson: You know it was a statistic I looked at this morning, I said boy if you kind of stripped out the adjustment they made the last month and you threw the government in there, the number really wasn't all that far off of what the consensus was, you would be under 400,000 job losses if you make those two adjustments. But the government situation was interesting. I mean last month I guess was boosted by census workers at least a little and this month we actually lost jobs at the federal government in the middle of a major stimulus plan. And that was mind boggling number that I don't think anybody had really been anticipating.

Again, it doesn't necessarily help the real economy and here now the government lost jobs, but I think the good news is the stimulus money is on its way that those government jobs will reverse themselves going forward.

Now the really good news is that in the 15 different categories of the labor market that we track, there were only three plus the government that were worse than they were in the prior month.

And those were construction which was bad, it was professional services with a lot of temporary help numbers, and the leisure industry and then government, and all the rest of it, the trend continued its positive direction.

So I don't think the numbers were as bad as everybody is making them out to be, and certainly somebody should call the government to task for not creating more jobs here.

Glaser: So even though the headline numbers were pretty bad, when you dig into the data, you still see that this as a lagging indicator could indicate that the economy might be approaching its bottom?

Johnson: Yeah, absolutely. I mean I still think the bottom of the economy is here and now. I mean if you look at the purchasing manager survey number, some of the durable goods orders and some of the things that we have seen over the last few weeks, the trend is clearly positive in things that are leading the economy. And I think that will bode very well going forward.

And we have heard from several different human resources organizations that they are seeing the trends in layoffs decline, so I think we are going to be looking at better numbers on initial claims. So I am very bullish on the outlook for the economy over the next six months.

Now what happens with the auto industry and what dealers get closed and what plants get shut, what days or whatever is going to really mess with the numbers a little bit this summer and how to interpret them, but I think the trend is clearly positive if you are driven by the manufacturing sector.

Glaser: So in the coming weeks, what are some of the biggest indicators you are going to be looking for to confirm your suspicions that we are at the bottom?

Johnson: Clearly, we have just gotten a huge batch of numbers this week, so we almost have to wait another month to get another batch of them, but clearly the ISM numbers next month will be another important number. They have gotten better every month. Inventories is another number I will watch very closely, because as people both on the business level and on the house level have drawn down the amount of stuff they have hanging around and now when demand comes back, they are going to have to go out and produce those goods and I think that's going to have a very positive impact.

So, actually we will look at low inventories as being a good thing because it will help.

And I also think we will have the GDP number later this month and again that's more adding up stuff, but I think that number will probably be a little worse than some people are thinking, maybe down 2, 3%, again primarily because of this inventory situation which counts as a negative in GDP.

And so that's another number we will be seeing, but I am warning you in advance, it may not be a pretty number just like this morning's employment number.

Glaser: All right, great. Well, thanks for talking with me today, Bob.

Johnson: Great to be here.

Glaser: I am Jeremy Glaser with Morningstar.com. Thanks for watching.