Strong Hurricanes Reveal a Stronger Labor Market

Hurricanes Harvey and Irma had a significant impact on employment in September.

Zions Bank Oct 6, 2017

A hurricane-damaged United States lost 33,000 jobs in September. This decline ends a record-breaking 83 straight months of job gains, and showcases the strong impact natural disasters can have on the U.S. labor market. However, despite the decline in employment, the labor market showed some significant strength. The unemployment rate, which had already been hovering near 16-year lows, improved once again from 4.4 percent to 4.2 percent. In addition, the labor force participation rate rose from 62.9 percent to 63.1 percent, a signal that the economy is enticing more workers to come off the sidelines. And, year-over-year wage growth improved from 2.5 percent to 2.9 percent.

The top takeaways from the report are shown below.

The Record Ends

The U.S labor market posted its first monthly decline in employment in nearly seven years. The decline of 33,000 nonfarm and 40,000 private sector jobs, was worse than expected and well-below the estimates of economists. While these losses are no doubt significant, they will likely not persist as Texas and Florida continue their recovery efforts. Hiring should rebound, and could even surge, in the coming months.

Unemployment Continues Lower

The unemployment rate in the U.S. fell two-tenths of a percent to 4.2 percent. This is a very positive sign, and a signal that the underlying labor market is still performing well. The underemployment rate also declined, improving from 8.6 percent in August to 8.3 percent in September.

More People Are Joining The Labor Force

The improvement in the unemployment rate is all the more impressive due to the fact that more people joined the labor force in September. The labor force participation rate, which measures those individuals working or looking for work, increased from 62.9 percent to 63.1 percent. Typically, when the labor force participation rate rises, so does the unemployment rate. This is because some of the new labor market entrants find jobs and some do not – and so get counted as unemployed. In September, the labor market was strong enough to absorb the majority of new entrants and retain the current workforce. This was first month since March of 2014, that the labor force participation rate has hit 63.1 percent.

Annual Wage Growth Improved

Year-over-year wage growth improved from 2.5 percent to 2.9 percent. While economists have been patiently waiting for wages to improve, it remains to be seen if this is a transitory effect of the hurricanes or an actual sign of strength. Job losses in the leisure and hospitality industry were especially acute, and since workers in that industry typically earn lower wages, the loss of those jobs may have caused average wage growth to rise. It may be a while before wage growth becomes a reliable indicator again.

Growth by Industry

The leisure and hospitality industry was hit very hard by Hurricanes Harvey and Irma. The industry lost 111,000 jobs, with 105,000 being in the accommodation and food services sector. This industry may be depressed for some time, as many small businesses were impacted by the storms and may have closed for good.

The construction sector added 8,000 jobs and has added over 184,000 jobs since September of last year. Expect construction employment to rise in the coming months as reconstruction efforts in Texas and Florida get underway.

The manufacturing industry kept its hiring streak going, adding 2,000 jobs in September. This is the 11th straight month of job gains for the industry and a good sign of recovery after nearly 2 years of jobs losses.

The education and health services industry added the most jobs in September at 27,000. Of those jobs, nearly 25,000 were in the ambulatory health care services

The Bottom Line

Hurricanes Harvey and Irma had a significant impact on employment in September, but they also revealed the underlying strength of the U.S. labor market. Despite job losses, the unemployment rate improved, labor force participation rose, and wages picked-up. These are all signals that the strength in the labor market is here for the foreseeable future and may even improve as rebuilding efforts continue in Texas and Florida. This strong report likely increases the probability of another Fed rate hike in December.

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