Storm Surge Set to Boost U.S. Payrolls, Reversing September Loss
(Bloomberg) -- The tropical storm clouds that swept over the U.S. labor market in September quickly dissipated last month.
Employers added 312,000 workers in October, according to the Bloomberg survey median, after two hurricanes helped reduce payrolls by 33,000 a month earlier, the first decline since 2010. While the projected gain would be the largest in two years as people resumed work, economists say the effects on the job market from hurricanes Harvey and Irma will linger through year-end.
Average payroll growth in September and October would be a shade less than the mean through the first eight months of 2017. Even that slower pace of hiring is still enough to keep pushing the unemployment rate lower and underscores a tighter job market that’s put a premium on experienced workers.
Moving past the storms’ effect, the report will probably reinforce a familiar narrative, with the unemployment rate at a 16-year low and steady improvement in other measures of slack. Employers facing a shortage of qualified workers are reluctant to fire staff, while Americans are more upbeat about employment prospects and the outlook for the economy, which is benefiting from the job market-supported consumer spending.
“It’s a very healthy labor market,” said Harm Bandholz, chief U.S. economist at UniCredit Bank. “The hurricanes had a heavy impact on payrolls, and we should see a corresponding rebound in October” and to some extent, in November. “Employment gains continue to put downward pressure on the unemployment rate.”
Oct. Jobs Highlights
|Avg. hourly earnings y/y||+2.7%||+2.6%|
While the monthly jobs report will garner the usual attention when it’s released by the Labor Department at 8:30 a.m. on Friday, investors and economy watchers are also focused on who will be President Donald Trump’s pick to lead the Federal Reserve. That formal announcement is due later Thursday, with Trump planning to nominate Fed Governor Jerome Powell, according to four people familiar with the decision.
The October jobs data will provide Fed officials more evidence of progress on one of their twin goals, maximum employment. “The labor market has continued to strengthen,” the Fed said in a statement Wednesday after policy makers held a two-day meeting. “Although the hurricanes caused a drop in payroll employment in September, the unemployment rate declined further.”
Investors expect the central bank to raise interest rates in December for the third time this year.
Several recent reports indicate a healthy rebound in payrolls. Claims for unemployment benefits plunged to the lowest level since 1973 for the week when the Labor Department surveys businesses for its monthly employment figures.
Companies added 235,000 workers last month, the most since March, according to data Wednesday from the ADP Research Institute. The Conference Board’s October consumer confidence report on Tuesday showed the labor differential -- which measures the share of respondents saying jobs are plentiful minus the share saying they’re hard to get -- was the widest since July 2001.
Areas of the labor market that were depressed by the hurricanes may show a pickup. About 1.5 million people were unable to work due to bad weather during the month, a 21-year high that compares with a historical September average of about 80,000. The storms helped reduce payrolls by more than 100,000 at restaurants and bars, an industry where most workers only get paid if they show up to work. Economists expect a recovery in this category.
Wage growth probably settled back in October. Average hourly earnings are projected to rise 2.7 percent from a year earlier, according to the Bloomberg survey. They climbed 2.9 percent from September 2016, the most since the expansion started in 2009, partly because the hurricanes boosted utility workers’ overtime pay and kept people away from work in low-wage industries such as leisure and hospitality.
Average hourly earnings are likely to “moderate on reduced overtime for emergency workers,” according to analysts at Bloomberg Economics.
Once the weather distortions disappear, economists expect hiring will continue at a moderate pace while the jobless rate continues to slide. For October, though, the Bloomberg survey median calls for the unemployment rate to have held at 4.2 percent.
“The unemployment rate is well below the Fed’s estimates of long-run full employment and, even if job gains slow somewhat, the pace is likely to continue to put downward pressure on labor slack,” according to a note from Credit Suisse analysts led by James Sweeney.
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