Perfect storm hits jobs report

November 1, 2024

Hurricanes Helene and Milton and a strike in the aerospace industry suppressed job gains in October. Milton hit the week of the employment survey for the month, while areas hit by Helene less than two weeks earlier were still reeling. The only thing close in terms of suppressing payroll employment was Hurricane Katrina in 2005, which put a large damper on payrolls for two months following the storm.

The spillover effects hit the household survey as well as the establishment survey with a jump in the number of people applying for unemployment insurance in the worst affected states. The ranks of the employed fell by 368,000 in October, as the storms added to the ranks of the unemployed and depressed participation in the labor market. That is in addition to layoffs triggered by strikes. Striking workers are not counted among the unemployed as they technically still have jobs.

Separately, the ranks of those out of work due to bad weather and childcare disruptions, all of which grew from the monster storms, surged. The ranks out due to bad weather rose to 512,000, the highest since January 2024. Those missing work due to childcare problems hit 42,000, which is down from September, but still elevated for the month of October. Disruptions due to childcare problems have been moving up post-pandemic.

Payroll employment rose by 12,000 jobs in October, not statistically different from zero. That follows a downwardly revised 223,000 jump in September. The three-month moving average dropped to 104,000, well below the 148,000 we saw last month.

The big three job generators since June 2023 – healthcare and social assistance, leisure and hospitality and state and local government – posted mixed results. Healthcare and social assistance continued to dominate job gains, by adding 51,300 new payrolls during the month; healthcare rose, while social assistance dropped by 1,000. The drop in social assistance included those who involved in elder care and work at community centers; both were likely impacted by the storms.

Leisure and hospitality shed 4,000 jobs. The largest losses occurred in amusement parks and gambling establishments, which were shuttered by hurricanes. Look for those to jobs to come back in November as many are already reopened.

Public sector employment rose by 40,000, an acceleration over last month. The gains were concentrated in hiring at the state and local levels. We only saw an increase of 1,000 in federal employment. The US Postal Service shed jobs during the month. Local hiring was mostly in non-education jobs, which could include workers engaged in cleanup from the storms.

Wholesale trade jobs increased by 10,000, while retail trade fell by 6,400. Many retailers were idled by the storms as well. Separately, the largest retailers have announced plans to scale back or match the number of holiday hires in 2023. They tend to set the trend for the industry. A later-than-usual Thanksgiving is compressing the length of the holiday shopping season.

The largest losers included manufacturing employment, which fell by 46,000. The strike in the aerospace industry accounted for much of that weakness. Professional business services fell by 47,000; all of the decline showed up in temporary help agencies. Full-time hires were close to unchanged.

Construction added 8,000 jobs, less than a third of the pace of the last two months.  The gains were concentrated among specialty commercial contractors, which includes data centers. Residential construction employment, including contractors, fell 5,300 during the month. Many of the hardest hit states by the storms were areas that have seen some of the largest gains in new home construction since the start of the pandemic.

Rebuilding is not guaranteed, given the fatigue of repeated storms and rising insurance costs due to a surge in weather-related damages. More federal funding for long-term disaster relief is expected to be appropriated when Congress returns from recess after the election.

Average hourly earnings rose 0.4% in October, an acceleration from September. That translates to a 4% increase from a year ago and reflects the loss in low-wage jobs to storms. Hours worked stayed flat at 34.3 hours but were dominated by supervisory workers. Nonsupervisory workers were more likely to have their hours cut due to the storms. Weekly earnings rose 4% from a year ago, up from 3.6% in September.

The employment cost index, which is a better measure of employment costs for firms, cooled to a 3.9% pace over the summer from a 4.1% annual pace in Spring. Public sector wages, which lagged earlier in the recovery, are finally catching up but even there, the pace of gains is moderating. A surge in productivity growth in recent years is helping to contain employment costs for firms and alleviating the blow to profit margins. We haven’t really seen anything like the surge in productivity we are experiencing since the boom of the late 1990s; that boom paid dividends for years to come.

Separately, the unemployment rate held steady at 4.1% in October on the heels of a slight drop in the participation rate. Losses in participation were concentrated in those under 55 years of age. That brings us back to June levels. The hurricanes no doubt suppressed participation given the size of disruptions. Prime-age women were hit particularly hard. Their participation rate dropped to 77.8%, the lowest since March. Teens were sidelined as well. The hurricanes shuttered schools in worst-affected areas – lack of running water and electricity were major obstacles to getting schools reopened.

The best news of the day was that the “Sahm Rule,” which is a recession indicator and was breached in July, fell back into expansion territory in October. That underscores the danger in applying old rules of thumb to the post-pandemic economy, which continues to surprise with its resilience.

The ranks of the long-term unemployed fell slightly, but have moved up significantly from a year ago, suggesting it is harder to find a job once you lose a job. The consumer confidence data revealed a more positive shift in job sentiment in October, along with the ADP report on payroll gains. The latter surged in October. The premium for job hoppers jumped in October, but mostly because the wage gains for job stayers cooled.

The job openings and labor turnover survey revealed that job openings fell in late September but remained well above pre-pandemic norms. The pace of hiring picked up along with quit rates. The downside was layoffs, which ticked higher. The U6 measure of unemployment, which includes discouraged workers and those forced to accept part-time when seeking full-time work due to economic reasons, held steady at 7.7%. That is 0.7% above the pace we saw in February 2020, but well off the peak of 22.9% in April 2020. 

The October employment report was distorted by storms and strikes and provides more confusion than clarity about the underlying strength of the job market; other measures paint a more resilient picture. A November rate cut by the Federal Reserve is all but a done deal; debate over a December cut could be more heated and will depend heavily on the inflation reports for October and November.