Economy

US employment falls for the first time in seven years

Hurricanes Harvey and Irma caused temporary unemployment and delayed hiring

People walk the streets as they evacuate their homes in Houston, Texas, after the area was flooded by Hurricane Harvey

Fri Oct 6 2017 - 13:43

US employment fell in September for the first time in seven years as Hurricanes Harvey and Irma left displaced workers temporarily unemployed and delayed hiring, the latest indication that the storms undercut economic activity in the third quarter.

The Labour Department said on Friday non-farm payrolls decreased by 33,000 jobs last month amid a record drop in employment in the leisure and hospitality sector.

The drop in payrolls was the first since September 2010. The Department said Harvey and Irma, which wreaked havoc in Texas and Florida in late August and early September, had reduced “the estimate of total non-farm payroll employment for September.”

Economists polled by Reuters had forecast payrolls increasing by 90,000 jobs last month. The government revised data for August to show 169,000 jobs created that month instead of the previously reported 156,000.

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Payrolls are calculated from a survey of employers, which treats any worker who was not paid for any part of the pay period that includes the 12th of the month as unemployed.

Many of the displaced people will probably return to work. That, together with rebuilding and clean-up is expected to boost job growth in the coming months.

Leisure and hospitality payrolls dived 111,000, the most since records started in 1939, after being unchanged in August. There were also declines in retail and manufacturing employment last month.

Harvey and Irma did not have an impact on the unemployment rate, which fell two-tenths of a percentage point to 4.2 per cent, the lowest since February 2001.

Low-paying industries

The smaller survey of households from which the jobless rate is derived treats a person as employed regardless of whether they missed work during the reference week and were unpaid as result.

It showed 1.5 million people stayed at home in September because of the bad weather, the most since January 1996. About 2.9 million people worked part-time as a result of the bad weather.

The length of the average workweek was unchanged at 34.4 hours. With the hurricane-driven temporary unemployment concentrated in low-paying industries like retail and leisure and hospitality, average hourly earnings increased 12 cents or 0.5 per cent in September after rising 0.2 per cent in August.

That pushed the annual increase in wages to 2.9 per cent, the largest gain since December 2016, from 2.7 per cent in August. Annual wage growth of at least 3 per cent is need to raise inflation to the Fed’s 2 per cent target, analysts say.

The mixed employment report should not change views that the Federal Reserve will raise interest rates in December.

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".

Interest rates

The US central bank said last month it expected “labour market conditions will strengthen somewhat further”. The Fed left interest rates unchanged in September, but signalled it expected one more hike by the end of the year. It has increased borrowing costs twice this year.

The employment report added to August consumer spending, industrial production, homebuilding and home sales data in suggesting that the hurricanes will dent economic growth in the third quarter.

Economists estimate that the back-to-back storms, including Hurricane Maria which destroyed infrastructure in Puerto Rico last month, could shave at least six-tenths of a percentage point from third-quarter gross domestic product.

Growth estimates for the July-September period are as low as a 1.8 per cent annualised rate. The economy grew at a 3.1 per cent rate in the second quarter.

Construction payrolls rose 8,000 in September. Manufacturing employment slipped by 1,000 jobs. Retail employment declined by 2,900 jobs.

- Reuters

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