How Hurricanes Harvey and Irma Contributed to the First Payroll Losses in Years

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If you were already bracing for a poor payrolls report for September, your hunch was right. What came as a large surprise, on top of a solid unemployment rate, was that both nonfarm payrolls and private sector payrolls decreased in September. Much of this is due to the impact of hurricanes Harvey and Irma, but there may be some other issues that need considering as well.

Nonfarm payrolls contracted by 33,000 in September, its first formal decline in years. Bloomberg had a projected estimate calling for a gain 100,000, in a range of 0 to 140,000. Dow Jones (WSJ) was calling for a gain of 80,000. Government jobs rose by 7,000 in September.

The private sector payrolls, those jobs that you and I do not pay for via taxes for government workers, showed a loss of 40,000, and Bloomberg’s range was 20,000 to 150,000. One key issue that stood out was that employment in food services and drinking places declined by 105,000 in September. If you factor those out to a net-wash and look at the prior estimates, then you begin to get a clearer picture that this report may not be as negative as it seems from the headlines.

August’s payroll gains were solid on revisions. The nonfarm payrolls were revised up to 169,000 from the preliminary 156,000. The private sector gain of 165,000 for August was revised down only 1,000 to 164,000.

One note from the Bureau of Labor Statistics (BLS) showed an undefined impact from the hurricanes, and it may make the revisions look quite different ahead. That note said:

It is likely that the payroll employment estimates for September were lower due to the effects of Hurricanes Irma and Harvey. We may learn more about the hurricanes’ impact when state employment and unemployment estimates become available on October 20, 2017.

Where the September employment situation report looked positive was in the 4.2% official unemployment rate. Bloomberg was calling for the rate to remain flat at the 4.4% rate reported for August. Another positive was that the labor force participation rate rose to 63.1% in September from 62.9% in August. Average hourly earnings also rose in September, with a 0.5% monthly gain and a sharp 2.9% annualized gain. Also worth noting as a positive was that the number of unemployed persons declined by 331,000 to 6.8 million.

It is obvious that the hurricanes had an impact on September’s report. Otherwise you would not have seen a drop rather than a weaker gain. Also worth noting was that the BLS included a rather long note about how hurricanes Irma and Harvey had an impact. 24/7 Wall St. has included some other live or preview commentary from outside sources as well.

The BLS formal statement about the hurricanes said:

Hurricane Irma made landfall in Florida on September 10–during the reference period for both the establishment and household surveys–causing severe damage in Florida and other parts of the Southeast. Hurricane Harvey made landfall in Texas on August 25–prior to the September reference periods — resulting in severe damage in Texas and other areas of the Gulf Coast.

Our analysis suggests that the net effect of these hurricanes was to reduce the estimate of total nonfarm payroll employment for September. There was no discernible effect on the national unemployment rate. No changes were made to either the establishment or household survey estimation procedures for the September figures. For both surveys, collection rates generally were within normal ranges, both nationally and in the affected states. In the establishment survey, employees who are not paid for the pay period that includes the 12th of the month are not counted as employed. In the household survey, persons with a job are counted as employed even if they miss work for the entire survey reference week (the week including the 12th of the month), regardless of whether or not they are paid. For both surveys, national estimates do not include Puerto Rico or the U.S. Virgin Islands.