Q&A: Moody’s Makes Sense of the Jobs Numbers

Okay, so unemployment didn’t budge and we only added 80,000 jobs. But, says Moody’s economist Sophia Koropeckyj, it’s not all bad news. Just look at Detroit!

What’s the biggest surprise in the report?I didn’t anticipate the big decline in private education hiring. And the weakness in health care. There was no reason to expect that to occur.

Then again, the resilience in manufacturing was a bit of a surprise as well. Given that there’s been a lot of bad manufacturing reports, I expected no gains in manufacturing, or even a decline.

Any other good news?We’ve received other indicators that showed somewhat stronger conditions in the service sector. What that could suggest is that these jobs numbers–which are sample based and subject to all sorts of statistical techniques–could turn out to be better, after revisions. Sure, that doesn’t really help much right now, since we’re seeing this sad 80,000 number. Ultimately, what I’m saying is that it’s hard to really believe these numbers one hundred percent, if you look at the whole picture.

Where would you advise a new college grad to look for a job?Probably the Southwest, or Texas. Maybe even on the West Coast, due to growth in the tech sector. And there are places that you wouldn’t expect. The suburbs of Detroit are actually hiring a lot of people. Manufacturing-related jobs that require a college education probably would not be a bad place to go. You can look in any large city in the Midwest. Manufacturers require workers of higher skill these days.

So, is the private sector “doing fine?”I wouldn’t go that far. I would characterize what we’re seeing as “bumbling along.” But there are other silver linings. Wage growth was better than the past few months–people have a bit more money to spend. And people are working longer hours. That suggests businesses could be hiring more workers down the road. Those are all positive things.

Who’s getting hit the worst?Public education. There are lots of teachers getting fired. That’s probably not a good field to go into these days. And construction is going to be weak for a while.

With record corporate profits, why are businesses so afraid to hire?Uncertainty–lack of confidence in the strength of the recovery. Maybe things are going fairly well now, but will that continue two months down the road? Of course, it’s difficult to hire permanent workers. You have to interview a bunch of people, it costs money to bring them onboard, and you have to train them. So businesses are holding off until they know whether the U.S. economy is resilient enough to withstand weaker demand from Europe, slower growth in emerging economies, and the various fiscal issues. Nobody knows what will happen with the fiscal cliff and the Bush tax cuts. All those issues may not be resolved until the very end of next year.

Does the hiring shortfall look temporary–or more of a permanent, structural change?Our baseline forecast is that the U.S. economy will eventually be able to right itself. We don’t believe that there’s been a fundamental change. But in the near term, we don’t really expect much of an improvement. But once all these fiscal issues are resolved, things will get better. We already see evidence of improvement in the housing market, which brings in a lot of people from a lot of industries. That will allow job creation to accelerate next year. Businesses will gain more confidence, and they’ll look to expand.

There’s also still a lot of pent-up demand for consumer goods. Once there’s some evidence that economy is gaining momentum, consumers will release it. That will allow stronger gains. Basically, the natural fluctuations in the business cycle, regardless of what the government does, will eventually lead to improvement.

What could the government do to boost hiring?There are a lot of things government could do. I’m just not convinced they would do it. They could invest more in infrastructure, education, R&D… That kind of spending can spur a lot of private sector growth.

Would too much government investment crowd out or overwhelm the private sector?No, I don’t think so. There’s so much unused capacity in the economy. It would take many years for that actually to be a possibility.