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September Employment Numbers Drop After Hurricanes, Putting a Drag on Economic Activity

There was a drop in U.S. employment numbers in September, marking the first time in seven years that we’ve experienced backsliding. This comes as a result of Hurricanes Harvey and Irma leaving displaced workers temporarily unemployed and delayed hiring – yet another indication that the storms hurt economic activity in the third quarter.

Last week the Labor Department announced that nonfarm payrolls dipped by 33,000 jobs amid a record fall in employment across leisure and hospitality sectors.

The decline in payrolls marks the first occurrence since September 2010. The Department noted that Harvey and Irma, which caused widespread devastation in Texas and Florida in late August and early September, had diminished “the estimate of total nonfarm payroll employment for September.”

Economists had forecast payrolls increasing by 90,000 jobs last month. According to the government revised data for August, there were 169,000 jobs created that month instead of the previously reported 156,000.
Payrolls are calculated from a survey of employers, which considers any worker who was not paid for any part of the pay period that includes the 12th of the month as unemployed.

A good number of the displaced people will likely return to work. That, combined with the rebuilding and clean-up efforts, is expected to boost job growth in the months to come. Leisure and hospitality payrolls dived 111,000, the largely drop since records started in 1939, after holding steady in August. There were also declines in retail and manufacturing employment last month.
Harvey and Irma did not affect the overall unemployment rate in the US, which fell two-tenths of a percentage point to 4.2%, the lowest since February 2001. The smaller survey of households from which the jobless rate is calculated treats an individual as “employed” regardless of whether they missed work during the reference week and were unpaid as result.

Those figures showed that 1.5 million people stayed at home in September due to the bad weather, the most since January 1996. About 2.9 million people shifted from full time to part-time as a result of the heavy weather.

The length of the average workweek remained unchanged at 34.4 hours. With the hurricane-related temporary unemployment concentrated in low paying industries like retail and leisure and hospitality, where average hourly earnings rose 12 cents or 0.5 percent in September after gaining 0.2 percentage points in August.

That propelled an annual wage increase to 2.9%, the biggest jump since December 2016, from 2.7% in August. Yearly wage growth of at least 3.0% is needed to raise inflation to the Fed’s 2% target, analysts say.

The mixed employment report shouldn’t have any impact on whether the Federal Reserve will raise interest rates this coming December. Fed Chair Janet Yellen warned last month that the hurricanes could put a “substantial” drag on September job growth, but also predicted that the impact would “unwind relatively quickly.”

The U.S. central bank said last month it expected “labor market conditions will strengthen somewhat further.” The Fed left interest rates alone in September, but gave strong indication that there would be one more hike by the end of the year. It has also increased borrowing costs at two different points this year.
The employment report added to August consumer spending, industrial production, homebuilding and home sales data, indicating that the hurricanes will put a dent in economic growth in the third quarter.

Economists have calculated that the back-to-back storms, including Hurricane Maria which demolished infrastructure in Puerto Rico, could shave at least six-tenths of a percentage point from third-quarter GDP.

Growth estimates for the July-September period are as low as a 1.8% annualized rate. The economy grew at a 3.1% rate in the second quarter.
Manufacturing employment slipped by 1,000 jobs in September, and retail employment declined by 2,900 jobs. One big silver lining: construction payrolls rose 8,000 in September.

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