The hurricanes that lashed the Texas and Florida coasts in late August and early September had a “net effect” of reducing nonfarm payrolls but “no discernible effect” on unemployment, the Labor Department reported Friday.
The reason for the seemingly contradictory outcomes is they are reached through separate surveys.
The economy lost 33,000 jobs – the first hiring drop in seven years – while a gain of 90,000 jobs had been expected, but unemployment fell from 4.4% in August to 4.2% in September, the lowest figure since February 2001.
Unemployment is calculated via a survey of households, and workers are still counted as employed (but they are not always paid) if they are unable to work because of the weather. In the case of workers in the restaurant industry, most are not paid if they are not able to work.
The payrolls figure is calculated through a survey of employers. If the establishment in question is a restaurant or bar, most employees who are unable to work are not paid, bringing down the payroll.
And the hurricanes kept both employees and customers from restaurants and bars in the affected areas.
The job loss, the Washington Post reported, was not as significant as “the increase of 906,000 jobs in the survey of U.S. households.”
“The 33,000 loss gleaned from the survey of employers reflects the decline in the number of paychecks issued during the survey period,” the Post explained. “But 906,000 more Americans are actually employed.”
Alexander Kuptsikevich, analyst for U.K.-based FxPro, had this to say: “The manufacturing employment increase in June-August amounted to 83,000. After the revision this estimate dropped to 51,000. However, the dollar initially rose as trading robots reacted to a sharp drop in the unemployment rate. In addition, in September wages advanced 0.5% while the annual pace of growth accelerated to 2.9%, the highest level since December.”
“The negative top-line figure is largely the product of the recent hurricanes,” said John Engle, president of Chicago-area family office merchant bank Almington Capital. “While never great to see, it shouldn't be taken as a negative sign. In fact, we are seeing improvements in other significant indicators, such as an increase in the labor force participation rate and a decrease in the underemployment rate. So while an increase in unemployment might cause some jitters, it is by no means indicative of a weakening jobs market or economy as a whole.”
“As one would expect, Hurricanes Harvey and Irma wreaked havoc with unemployment figures,” said Mary Kaarto, a Houston-based retired editor and now author and speaker. “Nevertheless, the labor market is holding its own in spite of these natural disasters.”
Kaarto pointed to “other signs of an economy that's been resurrecting for quite some time now. For example, the Dow Jones Industrial Average indicates that stocks have maintained a steady and continuous rise during the last 30 days. On Sept. 6, the stock index showed a figure of 21,000.00, with an increase to 22,775.39 as of Oct. 6.”
Marc Tollefson, chief investment officer at Prime Advisors Inc., viewed the numbers in the context of the Fed’s expected rate increase in December.
“Markets are clearly looking at the fresh lows in unemployment and more importantly the pick-up in wages as interest rates have traded up across the yield curve,” Tollefson said. “These strong numbers in turn pushed markets’ expectations of an additional rate hike in 2017 to an 80% probability, closing the gap between the Fed’s guidance and market expectations seen earlier in the month.”
“With almost 1.5 million people not able to get to work due to Hurricanes Harvey and Irma, it is not a surprise to see such large distortions in headline payrolls,” said James McCann, senior global economist for Aberdeen Standard Investments. “However, there were encouraging signs in other parts of the report. Headline unemployment and underemployment rates both fell to new cycle lows with the BLS (Bureau of Labor Statistics) reporting that these had not been affected by bad weather. This progress came in spite of increased participation, and indeed there have been signs over the past 18 months that people are being drawn back in to the labor force. Finally, earnings data posted an upside surprise with August data also revised a touch higher.”
Aberdeen Standard Investments manages $758 billion and is a new entity following the merger of Aberdeen Asset Management and Standard Life Investments.
“The FOMC will likely put more weight on these stronger underlying developments rather than the weather-affected headline,” McCann said. “Indeed, these data, along with a broader range of recent economic indicators, look consistent with the Fed delivering the hike that it has signaled for December. However, despite the improvement in earnings, the broader trend remains sluggish and underlying inflationary pressures are still only expected to build gradually. Against this backdrop we think the Fed will only be able to raise rates twice in 2018 rather than the three hikes that it has penciled in its dot plot.”
