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Jobs Picture: October 7, 2005

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October 7, 2005

Katrina knocks payrolls off course, but less than expected

Due to the impact of Hurricane Katrina, the nation’s payrolls contracted by 35,000 in September, the first monthly loss in over two years, according to data in today’s report from the Bureau of Labor Statistics (BLS).  The storm also drove the unemployment rate up, from 4.9% to 5.1%, adding 270,000 to the ranks of the unemployed.

The BLS reports that the losses associated with the hurricane were offset by solid job growth in the rest of the country.  The Bureau established this fact by examining changes in employment growth, August to September, in the areas unaffected by Katrina.  Their findings from this analysis reveal that “…employment would have increased by an amount in line with the prior year’s average.”

Using this information and the fact that the prior year’s average of jobs added per month was 194,000, we can surmise that the jobs lost from the hurricane were around 229,000.  This is considerably lower than the reported number of storm-related unemployment insurance claims of 363,000, according to the Labor Department.  But this number includes the impact of both Katrina and Rita, the latter of which struck after the period considered for the BLS September report.

Yet as predicted, Hurricane Katrina caused massive job losses.  Analysts expected a “bigger negative” for the jobs number, with estimates in the range of -150,000. Presumably, the fact that such a large decline did not materialize in the September report was driven both by smaller than expected Katrina-related losses, and larger gains outside the affected areas.  On the latter point, note that job growth over the prior two months, July and August, was revised up by 77,000.

Figure A shows the extent to which Katrina pushed the payroll numbers “off the cliff.”  The figure plots monthly changes in the payroll survey, and includes the average—194,000—that prevailed through August (and, as noted by the BLS, through September outside of the Gulf Coast).  Though job growth was choppy, the two months prior to the storm saw a growth of over 200,000, leading to the large swing from 211,000 in August to -35,000 in September.

Figure A. Katrina knocks payrolls off course: Monthly employment changes, September 2004 - September 2005

Unemployment rose among whites and Hispanics, and fell for African Americans.  However, the decline in the jobless rate for African Americans was driven not by employment gains, but by a shrinking labor force, as the share of African Americans in the labor force fell by 0.4 percentage points, likely due to dislocation caused by the storm.

Job growth by industry reveals ongoing trends mixed in with storm effects.  Possible storm-related changes include large tourist-related losses, such as restaurants (-54,000), and recreation facilities, including casinos (-19,000).  Temp work spiked up by 32,000, and state government was up 14,000, both of which are above recent trends and possibly linked to storm-related employment needs.

Retail trade was down 88,000 in September, its largest monthly loss since April 2001.  Though the BLS notes that most of this decline is unrelated to the storm, it is a very sharp reversal of trend, and thus is probably at least partly weather-related.

Manufacturing employment continued to slide, down 27,000 in September, though 18,000 of these losses were due to a strike in aerospace.  Health care and construction continue to be consistent job gainers, adding 37,000 and 23,000 jobs, respectively, in September.

Summarizing the information in this first detailed look at the impact of Katrina on the labor market, there is both predictably bad news from the affected area and better-than-expected news from the rest of the job market.  Employment growth, which has been quite solid over the past few months, stayed robust outside of the Gulf Coast, with employers apparently adding jobs at the pre-Katrina rate.

What can we surmise about the future from today’s report?  Here, a key question is whether the short-term job losses and the associated increase in unemployment trigger negative effects that reverberate through more of the economy than has been the case so far.  For example, with a less-tight job market, there is less pressure for employers to bid wages up, exacerbating an ongoing problem of real wage losses for most workers.  Today’s report, for example, reveals wage growth over the past year of 2.6%, well behind the most recent inflation readings in the mid-threes. 

It’s also notable that the impact of both Katrina and Rita on U.S. energy refining capacity will create more pressure on price growth, creating the possibility of slower-growing wages colliding with faster-growing prices. In addition, we surely haven’t seen the end of Katrina’s negative impact on jobs—the city of New Orleans recently announced significant layoffs in its public sector (not reflected in today’s report), and private establishments in the affected area that kept workers on their payrolls through September may not do so in coming months.

Pushing the other way—toward greater labor demand in coming months—the funneling of tens of billions of dollars targeted at rebuilding the region will generate faster job growth in the medium term (though important questions remain regarding the quality of these jobs, given the Bush administration’s decision to suspend prevailing wage rules).

A final note from today’s report is the preliminary announcement of the 2005 benchmark revision (this is unrelated to the hurricanes).  The BLS announced a downward revision of 191,000 for March 2005, meaning that instead of payrolls adding 1.87 million jobs, March 04-March 05, they added 1.68 million, suggesting a slightly less robust jobs picture than was previously thought.

Today’s report was written by EPI economist Jared Bernstein, with research assistance from Yulia Fungard.

To view archived editions of JOBS PICTURE, click here.

The Economic Policy Institute JOBS PICTURE is published each month upon release of the Bureau of Labor Statistics’ employment report.

EPI offers same-day analysis of income, price, employment, and other economic data released by U.S. government agencies. For more information, contact EPI at 202-775-8810.


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