Economists React to NFP

Friday, October 07, 2005 | 05:30 PM

October 7, 2005 10:58 a.m.

The WSJ notes that "the U.S. economy lost jobs in September for the first time in over two years as economic convulsions from Hurricane Katrina damped the job market. The Labor Department said Friday that nonfarm payrolls declined by 35,000 jobs last month. That marked the first decline since May 2003, when the labor market was struggling to get back on its feet after being set back by the 2001 recession. The drop was the largest since a decline of 54,000 jobs in April 2003.

Meanwhile, the unemployment rate rose to 5.1%. Does the September employment report present an accurate picture of the labor market after Katrina? What does it mean for the economy going forward? Economists weigh in."

* * *

These were the two most interesting comments, in my opinion:

We doubt that this report has captured all the job losses caused by this storm and none of those that may have been triggered by Hurricane Rita. (For instance, the city of New Orleans last week announced that its loss of revenues was forcing it to cut workers this month.) Thus, next month's report could reveal additional storm-related job losses. When re-hiring resumes, monthly job gains will tend to generate above-trend growth in employment. It is going to be especially difficult for at least the next two to three months to gauge the underlying national trends in the job market.
(emphasis added)

-- David Resler and Gerald Zukowski, Nomura Securities International

We can't ignore the pain in the Gulf Coast, but we shouldn't ignore either that for the rest of the country the economy looks to be in good shape. The Fed is more concerned about rising inflation than weakening growth and this report should strengthen that case. With today's report, I see no reason to expect the Fed to slow its measured pace, but they won't see any need to go for a half-point bump either. Stripping out energy prices, almost all of the underlying inflation numbers are benign. Wall Street may not like today's report, but Main Street should like it just fine. 
(emphasis added, absurdity in the original)

-- Bill Cheney, John Hancock Financial Services

There's more after the jump . . .



Economists React
October 7, 2005 10:58 a.m.


While Hurricane Katrina affected the September employment data in a significant manner (albeit by less than generally expected on the payroll front), excluding the estimated effects of the storm the month's results were solid. Indeed, the underlying trend in the labor market is certainly strong enough to keep the FOMC comfortable with continuing its "measured" pace of tightening for some time.

-- Joshua Shapiro, MFR Inc.

The lower-than-expected loss of jobs in September, combined with upward revisions to July and August, suggest that the job market was carrying plenty of momentum when Katrina hit. This improves the chances that the economy can weather the hurricane shocks with only a temporary hit to growth.

-- Nigel Gault, Global Insight

The 35,000 worker decline in payrolls indicates that underlying job growth remains stable despite the uncertainty surrounding the economy in the aftermath of the hurricane and significantly higher fuel costs.

-- Stephen Gallagher, Societe Generale

Looking ahead we are now inclined to expect further Katrina effects in October, but by November the number should start to rebound. Given the uncertainties, though, we think these data will be a poor guide to the growth picture for the next few months, and we are more interested in the consumer and business confidence data.

-- Ian Shepherdson, High Frequency Economics

Earnings continue to struggle to gain traction despite the recent tightening in the labor market, especially in the face of hurricane distortions. The flat workweek still indicates that businesses remain very cautious. This reluctance may be dampening the wage gains that are needed to sustain strong consumer spending.

-- Steven Wood, Insight Economics

As for the details, it's hard to figure out what really happened. For example, did you know that the oil extraction industry added workers? Huh? There were huge declines in retail trade and the hospitality sector but the rise in health care continued largely unabated in spite of the closing of Gulf hospitals and health care facilities. There was a strong gain in education even though schools are not open. Another sign of craziness: The hours worked in the natural resources industry eased back only slightly. I guess those oil rigs really didn't shut down. How are these strange things possible?

-- Joel L. Naroff, Naroff Economic Advisors

The household survey also appeared to be distorted by the hurricanes with the unemployment rate rising to 5.1% -- the highest reading since May. Surprisingly, the "not at work due to bad weather" tally came in at only 214,000 -- somewhat below the year ago reading of 225,000. However, the relatively low reading was likely due to the fact that BLS interviewers did not gather any data from two parishes in New Orleans that were under mandatory evacuation orders.

-- David Greenlaw, Morgan Stanley


Economists React
October 7, 2005 10:58 a.m.

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