a peek behind the jobs numbers (robert johnson)

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Economy Drives Employment Economic Overview Trends in Employment/Recruitment

September 2012 Robert Johnson, CFA Director of Economic Analysis Vishnu Lekraj Senior Equity Analyst

Why Should I Care?

× Economy Drives Employment/Recruitment Levels × State of Labor Market Determines Employer Pickiness × More Outsourcing Means Less U.S. Employment × Stagnant Economy Makes Relocation Difficult × Nature of Recovery Determines Hot Sectors

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U.S. Economic Forecast

× 2012 Outlook: A Slow Start Before an Acceleration

× Real U.S. GDP Growth of 2.0%-2.5%

× Inflation Slows to 2.0%-2.5% Due to Falling Commodities

× Employment Growth Accelerates to 195,000 Per Month × Unemployment Rate Drops to 8.0% or Lower

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Economic Drivers

× Consumer Spending

× Housing and Construction

× Lower Inflation × Autos

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Risks to Economic Growth

× Drought Could Cause Food Inflation

× Consumer Spending Outpacing Incomes

× Geopolitical Issues

× European Sovereign Debt × Slowing Manufacturing Economy Outside the United States

Where Are We Now? Muddling Through

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This Recovery Has Grown at Half the Normal Rate

Year After Bottom, 33-Month GDP Growth Rate

Prior GDP Contraction

1982 15.8% -2.7%

1960 15.6% -1.0%

1970 15.3% -1.1%

1975 13.7% -3.2%

1954 12.1% -2.6%

1958 11.2% -3.7%

1991 8.7% -1.4%

2001 6.7% -0.3%

1980 5.2% -2.2%

Average 11.6% -2.0%

2009 6.7% -5.1%

Sources: BEA, Morningstar calculations.

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Consumer Takes the Stage, Represents 71% of the Economy

Source: The Gleaner.

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Watching the Consumer Is Key

Reasons for Consumer Optimism

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Private Sector Employment Continues to Grow

Source: Bureau of Labor Statistics, updated Aug. 3, 2012.

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Initial Claims Point to a Stronger Job Market

Source: Bureau of Labor Statistics, updated Aug. 23, 2012.

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Inflation Falling Back, Key to Continued Recovery

Source: Bureau of Labor Statistics, updated Aug. 15, 2012.

Bars Are Recessions, Line Is Recession Danger Point

Home Prices Stabilizing at Last

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Source: St Louis Federal Reserve, updated Aug. 28, 2012.

The Consumer Is Far From Worry Free

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Drought Could Drive Food Prices Skyward

Source: http://i2.cdn.turner.com/cnn/dam/assets/120716054700-midwest-drought-06-horizontal-gallery.jpg

Consumer Income Growth Is Stagnant

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Source: Bureau of Economic Analysis, Morningstar Est. for June, updated July 31, 2012.

The Stages of Consumer Confidence

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Retail Sales Continue to Chug Along—Short-Term Confidence

Source: International Council of Shopping Centers, updated Aug. 28, 2012.

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Auto Sales Could Jump in 2012—Intermediate-Term Confidence

Source: Automotive News, updated Jan. 4, 2012 and April 10, 2012.

U.S. Auto Sales Year Millions of Units 2009 10.4 2010 11.6 2011 12.8 2012E 13.6 (Rev. Est. 14.5)

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Improved Consumer Confidence Means More Auto Sales …

Interpretation: January 2012 sales were 81% of 2005 levels. Sources: BEA, Bureau of Labor Statistics; Morningstar, Updated Aug. 1, 2012.

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… but Not Enough to Help the Housing Market —Long-Term Confidence

Sources: Census Bureau; Morningstar, updated Aug. 16, 2012.

Red bar represents average natural demand, Morningstar estimate

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Future Dynamics for the Recruiting Industry a

Factors and Trends Affecting HR Specialists

• Structural Change in Economy

• Service Sectors Will Drive Growth

• Contingent Labor Will Play a Larger Role

• More HR Back-Office Automation

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Structural Change to Economy = Structural Change to HR Services Sectors Expected to Produce Robust Employment Growth

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Top 17 Occupations for Employment Growth Forecast by the BLS from 2010 through 2020 (Thousands)

Sources: BLS, Morningstar.

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Structural Change to Economy = Structural Change to HR Services Contingent Labor Will Play a Larger Role

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5%

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90s 00s Recent

Contingent Labor as a % of Job Adds 36 Months Post Recession

Sources: BLS, Morningstar.

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Structural Change to Economy = Structural Change to HR Services Automation and Outsourced Services Will Play a Larger Role