Storm, strikes distort October jobs report

October 28, 2024

Payroll employment is expected to rise by 90,000 in October, well below the upside surprise of 254,000 in September and less than half the 187,000 three-month moving average. A machinists’ strike in the aerospace industry is expected to shave 38,000 off the top in the manufacturing sector, with another sizable chunk in losses from the spillover effects of those strikes on suppliers. 

The hurricanes Helene and Milton, which occurred during the week of the survey period, could deal another substantial blow, which would push employment gains within the interval of confidence of zero or less than 100,000 net new jobs. Some 3.5 million households were without power in the week of the survey due to the one-two punch of the monster storms. 

The most vulnerable jobs are leisure and hospitality, construction and retail. One major hospital in Asheville, North Carolina scrambled to dig a well to get water running and remain open. Major weather events usually hit local communities much harder than the overall economy, but the severity and timing of the storms suggest they could have a larger impact on the overall employment report than usual. We saw similar ripple effects from Hurricane Irma in 2017 and Katrina in 2005. 

Average hourly earnings have been running higher in recent months but weekly earnings were dampened by a fall in hours worked. Low-wage jobs tend to be hit harder by storms than high-wage jobs as they include more hourly workers. We expect to see average hourly earnings rise by 0.4% in October, a tick slower than September. That translates to a 4.1% gain from a year ago, the highest since March. A slowdown payroll growth of low-wage jobs due to hurricane disruptions is primary reason. The Fed’s Beige Book report revealed that wages were cooling, which tracks with advertised wage gains.  Average weekly hours could dip to 34.0, which would be the lowest level since March 2010. That will put a damper on weekly earnings.

Separately, the unemployment rate is expected to move up to 4.2% in October from 4.1% in September. Initial unemployment claims surged in the aftermath of Helene. Temporary layoffs are expected to rise as businesses assess how much they can salvage from the worst affected areas.

The largest disruption is likely to be among those who could not work due to bad weather. The all-time record for the series was during a blizzard on the east coast in 1996, when more than 1.9 million people reported that they could not get to work. The next largest was in September 2005, when 1.4 million were sidelined in the wake of Katrina.

Much depends on how well surveys can reach those most affected by the storms; cell towers were knocked down in many areas. I would not be surprised to see that figure approach a new record in October, given the lingering disruptions due to Helene and the evacuations due to Milton, which hit the week of the survey for employment in October.

Another big disruption is expected to be those who cannot work or are forced to cut back on hours worked due to childcare problems. Many schools have yet to regain electricity and running water in the wake of the storms. That is further disrupting the ability of working parents to return to work.

The Federal Reserve tends to “look through” strikes and storm disruptions when making policy decisions. The Fed has signaled that it would like to better calibrate and slow the pace of future rate cuts after cutting by an outsized one-half percent in September. We still expect two rate cuts by year-end but the risk that the Fed skips December is rising.