The U.S. economy shed 33,000 nonfarm payroll jobs in September, the first monthly decline in seven years, according to the Bureau of Labor Statistics (BLS). Two hurricanes that caused billions of dollars in property damage were the culprits, say real estate economists.
Hurricane Harvey slammed into the Texas coast on Aug. 25 with extremely heavy rain and 130 mph winds. Hurricane Irma, a massive tropical cyclone that engulfed the entire Sunshine State, blew onshore in Florida on Sept. 10. It was the first time two Category 4 storms made landfall in the United States in the same year.
Two employment sectors — most notably leisure and hospitality and food and drinking services — endured steep job losses in September, contracting by 111,000 and 105,000 jobs, respectively, for the month.
To gain a better insight into the short- and long-term impact of the hurricanes on the U.S. economy and the employment market in particular, REBusinessOnline reached out to three economists: JLL’s chief economist Ryan Severino, Cushman & Wakefield’s principal economist Ken McCarthy and HomeUnion’s director of research Steve Hovland.
Their edited responses to a series of questions sent via e-mail appear below.
REBusinessOnline: The BLS offered a somewhat complicated explanation on its website about the ramifications of the hurricanes on the September nonfarm payroll report. In your view, to what extent did Hurricanes Harvey and Irma responsible for the loss of 33,000 jobs for the month?
Ryan Severino, JLL
Ryan Severino: I completely ascribe the decline to the hurricanes. The underlying trend is firm. Excluding September, the average monthly job gain for the year was 171,000 jobs per month — nowhere close to zero. The last time there was a monthly contraction in jobs was September 2010. Without the hurricanes, payrolls surely would have expanded in September.
Ken McCarthy: With a decline of 111,000 leisure and hospitality jobs, it’s pretty clear there were impacts from Hurricanes Harvey and Irma. Florida is home to a lot of those leisure and hospitality jobs, which has been one of the strongest sectors throughout the expansion. It’s a huge decline. We’ve never seen anything like it. Even during the recession, we didn’t see declines like that in one month.
Keep in mind, though, that the BLS asks how many people were employed at this location on the 12th of a given month. And Sept. 12 fell during the week that Hurricane Irma hit Florida.
Steve Hovland: Beyond the impact of two hurricanes, there isn’t any reason to believe that the job market has taken a sudden downturn. We would have expected about 150,000 jobs to have been created during the month, so the hurricanes probably account for a 150,000 to 210,000 swing in the headline number.
REBO: The BLS writes the following: “Employment in food services and drinking places dropped sharply in September (loss of 105,000 jobs), as many workers were off payrolls due to the recent hurricanes. Over the prior 12 months, food services and drinking places had added an average of 24,000 jobs per month.” Besides food services and drinking places as well as the hotel industry, where there any other job sectors negatively affected by the hurricanes in the short term?
Severino: Many industries were impacted by the hurricanes. The number of people who had a job but who were unable to report to work due to bad weather jumped by roughly 1.5 million in September. A figure that big will cover many industries. That will reverse in the coming months.
McCarthy: The leisure and hospitality sector stands out, but every other sector basically followed economic trends we’ve tracked for the past year or more.
Hovland: The professional and business services sector is the largest concern, as average growth in this field dropped by nearly 35,000 jobs compared to the previous 12 months. After the catastrophic hurricanes, companies with employees in impacted areas may have paused their hiring efforts to focus on the well-being of their workers. We believe this temporary pause will be reversed by the October survey period.
REBO: Will we likely see a positive bounce to the BLS numbers in October due to recovery and rebuilding efforts? If so, which employment sectors will potentially benefit most? What does past history tell us about the impact of hurricanes on the U.S. job market in the short and long term?
Severino: Manufacturing and construction should bounce back in the coming months. Past history tells us two things: In the short term, there will be a bounce back and September’s contraction will be an anomaly. In the long term, natural disasters such as these impose a lasting, negative impact on economic growth, including the labor market. Economic growth is slower after major disasters for many years, which shows upon things like income. So even as we overcome short-term disruptions, lasting effects will occur for many years to come.
Ken McCarthy, Cushman & Wakefield
McCarthy: We definitely expect a rebound in October. I was in Orlando last week, and you could already see facilities back up and running, as well as ongoing cleanup and construction and leisure and hospitality workers getting back on the job.These sectors will bounce back and even create new jobs.
Natural disasters like hurricanes create short-term volatility. In the long run, expect job growth to balance out — initial job loss immediately before, during and after an event, followed by job growth during the subsequent recovery. Nationally, the economy and job growth will return to ongoing trends of steady expansion.
Hovland: The pace of hiring should accelerate in the coming months to make up for reported losses during September.
After Hurricanes Katrina and Rita struck Louisiana in 2005, job growth dropped to an average of 75,500 during September and October. In the previous 12-month period, payroll gains had averaged 214,000 new positions monthly. Employers accelerated additions to 273,000 jobs during the following four months, recouping all of the losses. The timeline for recouping the current cuts could be shorter due to relatively lighter damage than New Orleans suffered from Hurricane Katrina.
Insurance money and federal aid will be pumped into impacted markets, and sectors aligned with that type of spending should benefit. In addition to the construction and retail sectors, leisure and hospitality should also benefit. Many residents flush with insurance money will spend those proceeds at local restaurants, where we expect to see a surge in hiring. Furthermore, the influx of construction workers into these markets will support local hotels and restaurants in the short term.
REBO: The change in total nonfarm payroll employment for July was revised down from +189,000 to +138,000, and the change for August was revised up from +156,000 to +169,000. With these revisions, employment gains in July and August combined were 38,000 less than previously reported. After revisions, job gains have averaged 91,000 over the past three months. True or false: Our economic expansion is starting to run out of steam even if we account for the employment disruptions caused by the hurricanes. Please explain.
Severino: False. Absolutely false. The economy remains on firm footing. Economic growth for 2017 should be about on par with average annual growth during the current expansion, and growth should likely accelerate in 2018 with modest fiscal stimulus. Monthly job gains are slowing due to labor scarcity, not an economic slow-down. Employers currently have 6.2 million open but unfilled positions, a record high. But we don’t have enough qualified applicants for many of the jobs that are currently available. If we did, we would have even more jobs than we have today.
McCarthy: False. You can’t draw that big of a conclusion from a couple months of data, especially given the impact of events like Hurricanes Harvey and Irma. We had 210,000 new jobs in June, so if you go back one more month, the four-month average is 120,000. You have to be careful in how you interpret the data. In addition, we expect a significant rebound in October.
Steve Hovland, Homeunion
Hovland: The economic recovery is maintaining momentum, but that momentum isn’t particularly spectacular. Higher home prices and interest rates will calm some of the big-ticket spending and auto sales. Employers will continue to expand, but at a pace comparable to economic growth. They have already covered the slack generated by the last recession.
One of the things that we often fail to consider is the boost in technology that creates greater productivity from each individual worker. The first iPhone came to market less than six months prior to the Great Recession. Since then, the number of smartphones and access to high-speed networks has expanded quickly, enabling many workers to split their time between an office and worksite. Administrative and entry-level professional roles have been significantly impacted by the ability of computers and connected workers to execute their jobs more efficiently.
REBO: The healthcare sector added 23,000 jobs in September, in line with its average monthly gain over the prior 12 months (+27,000). The employment increase in ambulatory health care services (+25,000) was partially offset by a decline in nursing care facilities (-9,000). Is there an explanation as to why we saw a substantial drop in employment at nursing care facilities in one month?
Severino: It’s going to be difficult to read too much into anything in September’s data because of the weather impacts. If this divergence were going to turn into a trend, it would take a number of months to unfold. For now, September’s data should not be fully trusted.
McCarthy: This could be related to Hurricane Irma. Florida’s demographics skew older in many communities, and so you have more nursing care facilities. As with leisure and hospitality, I would expect resurgent job numbers in October.
Hovland: Nursing care facilities have seen relatively flat employment since 2010 for a number of reasons. The high cost of keeping people in a nursing care facility has motivated many healthcare providers to encourage assisted living for longer durations prior to a move into a nursing home. We expect this trend to continue until Baby Boomers get closer to the average age at which people enter nursing homes. Generally, people enter nursing care facilities around 85.
REBO: The net employment gain for all of 2016 was approximately 2.2 million, down from 2.7 million in 2015. What is your projection for the total net gain in 2017 now that we’re in the homestretch?
Severino: I still believe that we will come in just above 2 million. The trend is modestly down due to the declining availability of labor, which is expected to continue to tighten.
McCarthy: We expect around 2 million new jobs for 2017. So far, we’ve added 1.3 million. Economic growth tends to accelerate during the fourth quarter, so if we add 200,000 per month through the end of the year, we’re right around 2 million new jobs. That wouldn’t surprise me at all.
Hovland: We anticipate approximately 2 million new jobs this year, representing a gain of 1.4 percent. To date, we’ve added 1.3 million new jobs. Over the last three months of the year, we anticipate hiring to jump to 200,000 positions per month as companies ramp up for the holidays, struggling retailers pause layoffs and the nation makes up for ground lost during September.
— Compiled by Matt Valley and Taylor Williams