Help Wanted: Hurricanes Hit US Jobs

The longest streak of US job growth is over! Nonfarm payroll employment fell -33,000 in September, the first loss in seven years. However, while headlines touted this drop, most also added a crucial caveat: Hurricanes Harvey and Irma. Those storms didn't just exact a major personal toll on those directly impacted in Texas and Florida-they affected national economic data, too. The hurricane-impacted jobs report gives us a good opportunity to review an important investing reminder: Always put data in its proper context.

While headlines picked up on September's 33,000 job loss, they didn't pay as much attention to the unemployment rate, which fell to 4.2% from August's 4.4%. This may seem counterintuitive: If the number of employed fell, shouldn't the unemployment rate rise? Not necessarily. The BLS' "Employment Situation" report has two primary inputs: the establishment (or payroll) survey and the household survey. Each tells a different story.

To illustrate a major difference between the two surveys, consider food services and drinking places^[i] jobs. Because of the hurricanes, many workers in this sector couldn't work in Texas and Florida and thus weren't paid. The establishment survey doesn't count these people as "employed" because they weren't on payrolls, so food and drink jobs fell by -105,000-the main contributor to payrolls' decline. However, the household survey considers these workers "employed" and noted 1.5 million workers had a job in September but couldn't work-the highest level in more than 20 years.^[ii] The unemployment rate is based on the household survey, so comparing it to establishment survey data is apples-to-oranges.

Neither survey is more "accurate" than the other. Rather, they focus on and measure different components of the US jobs picture. The BLS' report also isn't the only one of its kind. ADP's employment report-a private sector gauge-showed employers added 135,000 jobs in September. While eye-popping compared to the BLS' report, this is ADP's weakest increase since October 2016. ADP also noted Hurricanes Harvey and Irma played a big role in the weaker number, and in particular, smaller local businesses-rather than bigger ones-bore the brunt of the losses. Whether employment fell or grew more slowly, the recent hurricanes influenced some people's ability to work.

Other data reflect the storms' impact, too. In the ISM's September Manufacturing purchasing managers' index (PMI) report, plenty of survey respondents discussed the hurricanes:

• "Hurricanes causing supply chain and pricing issues."
• "Hurricanes Harvey and Irma will have significant effects on input costs. Disruption in supply chain. Concerns of transportation."
• "Business is strong. However, we are concerned about price increases due to the hurricanes."

Same for the ISM's non-manufacturing September PMI:

• "Hurricane Irma caused a revenue challenge that will take some time to recover from, interrupting business operations in that region and offsetting growth in others."

Automakers reported higher vehicle sales as those in flood-damaged areas bought new cars, and the Fed estimates Hurricane Harvey knocked approximately 0.75 percentage point off industrial output's August growth rate, ending a six-month streak of gains. As more US data roll out, the hurricanes' damage will likely continue to show up-perhaps most noticeably in the upcoming Q3 GDP report.

However, natural disasters don't tend to have a lasting impact. Following Hurricane Katrina's August 2005 landfall, September nonfarm jobs fell by -35,000, diverging from the average growth of 194,000 jobs a month over the prior 12 months. However, that figure rebounded the next month. Nonfarm employment rose 56,000 in October, and in November, it picked up 215,000. Construction jobs drove November's increases, which reflected rebuilding and cleanup efforts following Katrina.^[iii] Overall, 2005 nonfarm monthly employment gains averaged 133,429 in Q2, 133,750 in Q3 and 134,161 in Q4-late-lagging jobs data didn't materially dip because of Hurricanes Katrina and Rita. More broadly, the preliminary estimate of Q3 2005 GDP showed 3.8% annualized growth, accelerating from Q2's 3.3%. These data have undergone numerous revisions since then, but the broader point: The most damaging hurricane in US history didn't derail the economic expansion. We don't expect Hurricanes Harvey or Irma to do so, either.

This isn't to understate the struggles the afflicted in Texas and Florida will face rebuilding their lives. We also aren't arguing hurricane damage is somehow economic "stimulus" in any way-repairing destruction isn't a net economic benefit, as Frédéric Bastiat so eloquently argued in "That Which Is Seen, and That Which Is Not Seen." Rather, September's jobs report reinforces an important investing lesson: Don't overstate any one month of data, especially jobs numbers, which are notoriously late-lagging and say nothing about what is to come. Context is always key, and overall, the US economy is on solid ground, both now and for the foreseeable future.