US payrolls contracted in September for the first time in seven years as major hurricanes left workers idled in southern states but unemployment continued to fall, official data showed yesterday.
The September numbers also sank far below the expectations of analysts, who had predicted hurricanes Harvey and Irma would slow but not reverse job creation — which had until now been robust and uninterrupted during nearly a decade of economic recovery.
The new jobs numbers were likely to be unwelcome news to the White House even though President Donald Trump late last month acknowledged that the storms would probably dampen US economic activity.
Trump has vowed to create 25mn new jobs over a decade and the September report underscored how difficult attaining such a goal will be.
Economists said yesterday that Hurricane Irma in particular — which made landfall in Florida on September 10 just as federal workers were conducting their monthly employment survey — caused significant distortions and sent the data in contradictory directions. Total non-farm employment fell by 33,000 net positions for the month, with a steep drop-off in hiring at restaurants, according to the Labor Department.
But the unemployment rate also fell another two tenths to 4.2%, its lowest level since February of 2001.
Analysts had been expecting a slower, but still positive result of 75,000.
Instead, the September result ate into some of the employment gains from August, which was also below trend despite a small upward revision. “Looking past the short-term hurricane disruptions, the US economy is in good shape, data have surprised to the upside recently and confidence is soaring,” Mickey Levy of Berenberg Capital Markets said in a research note.
Unemployment fell even though job creation contracted because of differences in the way the Labor Department measures positions and unemployment.
An employee unable to work due to bad weather will not be counted as unemployed.
But the position will not count toward job creation if the worker goes unpaid.
And 1.5mn workers idled by bad weather were still counted as employed even if they retained their jobs but were unable to work — the highest such level in 20 years.
Nevertheless, economists have said the effects of the storms — which slammed into the economic hubs of Texas and Florida over a two-week period in late August and early September — were likely to be transitory.
Average hourly earnings, a closely watched measure of wages which can point to looming inflation, popped by a surprising 0.5% to $26.55. However, this may be another temporary, storm-related distortion: Those temporarily unable to work because of the storms are often lesser-paid workers, meaning average wages briefly appear higher.
Hiring at restaurants, where workers are often not paid if they miss work, fell by 105,000 for the month.
Payroll employment in other sectors, such as mining, construction, manufacturing and financial services, saw little change over the month.
There were other signs of weakness, however, with a net downward revision to the prior two months of 38,000 positions.
September’s surprise jobs contraction was unlikely to resolve disagreements among Federal Reserve policymakers, who have argued over the need to raise interest rates in the absence of inflationary pressures.
“The Federal Reserve has indicated that the distortions created by the hurricanes are ultimately little more than noise in the overall US economy,” economist Diane Swonk wrote in an analysis of the September report.
“I disagree but I don’t vote” on the Fed policymaking panel, she added.
“We expecting the Fed to raise rates one last time before chair Yellen likely steps down on February 3.”
Wall Street investors took the news badly, with all three major stock indices in the red towards 1600 GMT.
The broad-based S&P 500 had given up 0.3% while the blue-chip Dow Jones Industrial Average and tech heavy Nasdaq were both between 0.1% and 0.2% lower.
The unemployment rate is now below the Federal Reserve’s median average forecast for the fourth quarter.
Strong wage gains and shrinking labour market slack left financial markets almost fully pricing in a December interest rate increase from the US central bank.
Fed chair Janet Yellen cautioned last month that the hurricanes could “substantially” weigh on September job growth, but expected the effects would “unwind relatively quickly.”
“The Fed has been hyper-focused on wage growth, so the above-average increase will be a welcome relief, even if there is some storm impact embedded in the number,” said Marvin Loh, senior global markets strategist at BNY Mellon in Boston. “We think that the report strengthens the Fed’s December hike hand.”
The Fed said last month it expected “labour market conditions will strengthen somewhat further.”
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