What's at work in today's US employment report

Jason Stipp: I'm Jason Stipp from Morningstar. Since the October unemployment rate crept up to 10.2%, we've seen some signs of glimmers of hope in the market for employment since then.

Here with me to talk about what that could mean for tomorrow's [this video was first published on Morningstar.com Thursday evening; the jobs data is now due today, Friday] government employment report and unemployment data is Morningstar's Bob Johnson--he's associate director of economic analysis--and Vishnu Lekraj--he's an equity analyst covering the employment sector.

Thanks for joining me, guys.

Bob Johnson: Thank you.

Stipp: So first question for you, we have seen some signs of hope, some glimmers of hope, some more positive employment data since we saw the last government employment report. So what have you been looking at and what has that been telling you?

Johnson: Well, we've got actually a lot of pretty good news here. The initial unemployment claims, which is one of my very favourite indicators, has shown some huge improvements.

Now a lot of that's been in the last two weeks of data so it won't be in the jobs report, which ends in mid-November. So those aren't fully captured yet, but initial claims have been getting continually better and have frankly been improving at the pace that's pretty typical of any recession recovery. It's not slow like everybody thinks it is. The numbers have gotten nicely better.

And so that's the key one that's giving me some hope here.

Stipp: So some good signs there but maybe we'll see a little bit more of that effect in the next month's report.

Johnson: In the next report, exactly.

Stipp: What have you been looking at, Vishnu?

Vishnu Lekraj: A lot of the staffers have reported over the past month and they've been a lot more positive in their tone for future prospects for what customers have been telling them. Their needs may be over the next half year, which adds to the reports that are coming out over the past month.

With initial claims, again just want to reiterate, Bob said we've seen some good improvement. There may be some seasonal adjustments, there may be some holiday factors playing a role into that. But still, when you look at it from this month to what's happening last year, for the first time we've seen initial claims below last year's levels which is a very, very good thing.

Stipp: So the good trends are indeed holding up as you're looking at them.

Johnson: Yeah, and we saw the ADP report on Wednesday which is kind of cheating, it's kind of the payroll processors looking at the numbers. They saw about 30,000 less jobs in the prior month. And so if we did a similar exercise, we'd see some improvement in the federal numbers on Friday.

Stipp: Sure. Looking at the report tomorrow, obviously the market is going to be looking at this, Obama is having a job summit, so there's a lot of attention going to be paid to this number. It seems like we could see some signs of hope recently. But what are you expecting to see tomorrow? How do you think the market might react?

Johnson: Sure. And I'm not far off consensus for tomorrow. I'm thinking about job losses of 130,000. To put that in context, we were up over 700,000 at the worst in January. And in a good economy, you're probably gaining 100,000 to 200,000 jobs a month. So that gives you some idea of how far we really have come here.

And so I think I'm looking to beat that number tomorrow. I'm thinking we could do a little better than 130,000 from some of the factors that I look at and some better auto production rates and a couple of things. I think that Vishnu has a little disagreement with me on that one.

Lekraj: We're not far off on that number this month. Probably looking at 120,000 to 150,000, within that range is what I'm looking at, which is pretty much in consensus, I believe, and I think in light of what we've seen over the past quarter.

Stipp: So what specifically in the report will you be looking at tomorrow?

Lekraj: I'm definitely looking at retail, retail hiring. That is a key one over the seasonal holidays, obviously. And there's been some talk that retailers are really holding off on their hiring to see exactly what the consumer is going to do over the next month or so. And how they hire is going to kind of give indication as to how well these guys may do over the holiday season.

Also, temporary employment has been a very bright spot over the past couple months, actually over the past quarter really. The government revised some numbers and the number from last month for October put the number in positive territory for the first time in awhile, which is a very good sign.

So I want to see how that number reacts over the next month. But again, retail and probably temporary is what I'm looking at.

Stipp: OK, so certainly one to watch. Now last question for you. As things start to look up in the job market and people become a little bit more optimistic about the opportunity there, we can actually see that that will apply a little bit of pressure on the unemployment rate.

Do you expect to see the unemployment rate creep up a lot higher because maybe more people are entering the job force tomorrow? What are your expectations there?

Johnson: I think the number will creep up tomorrow, maybe a couple tenths. As people see more jobs available out there, I think more people enter the workforce. And if you're not really looking for a job, you don't get counted in that number.

Now all of the sudden if you come back into the workforce, if you say, "Well, I've had my vacation. I've spent my time with the kids. Now I'm going to really look hard for a job," that makes the number look worse even as employment goes up.

So I would expect the unemployment number to tick up a tenth or two tomorrow, and unfortunately probably for another month or two yet, I'm afraid. It'll probably get pretty darn close to the 10.8% high that we saw in the early '80s.

Stipp: OK, so maybe tomorrow 10.3%, 10.4%, is that about where you are as well?

Lekraj: That's about right. We'll probably see a number here tick up over the next half year as the market starts to improve, but really there are not as many prospects as you would think. People still looking can't find jobs. That number tends to tick up once a recovery has started and has started to go up.

Stipp: Well thanks for you insights, guys. I'll join you tomorrow and we'll talk about the numbers when they come out.

Lekraj: Thank you.

Johnson: Thank you.

Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.