September Jobs Report
The impact of Hurricane Harvey and Irma disrupted the labor market significantly in September, as U.S. payrolls declined for the first time since 2010. The impact of these two hurricanes was expected to weigh on the jobs report, as economists’ expected an increase of 80,000 jobs in September versus an increase of 169,000 jobs in August. However, payrolls fell by 33,000 as over 1 million people were unable to work due to bad weather. The Labor Department issued a special note with this month’s report that the hurricanes had a “net effect” of reducing nonfarm payrolls for the month, but “no discernible effect” on the national unemployment rate which fell to 4.2%, the lowest rate since February 2001. Much of the decline in payrolls came from the restaurant industry which experienced a decline of 105,000 jobs for the month, since most workers only get paid if they show up for work. Therefore, the overall decline in payrolls may be transitory as the impact of these storms decreases over time.
The main positive in the report, one that we believe the Federal Reserve will focus on, is the surprising growth in wages for the month. Wages rose 0.5% for the month versus an expectation of a 0.3% rise, and are now up nearly 3% on a year-over-year basis. However, this may have been impacted by the storms as well, since many low-wage workers were unemployed due to the weather. As we have stated before, rising wages are a linchpin to further economic growth here in the U.S., since consumer spending accounts for nearly 70% of our GDP. Furthermore, the Fed has stated their intent to continue raising interest rates as long as wage growth continues. We will continue to monitor this in future reports to assess whether wage growth is picking up, or falls back to the 0.2-0.3% average monthly growth rate we have experienced so far in 2017.
It may take several months before economic data normalizes given the severity of the impact that these two storms had across the Southern United States. Therefore, we expect the data on the labor market and the rest of economy to be volatile for the rest of the year although we do not see signs of the economy deteriorating at this point.