Hurricanes Gustav and Ike, as well as the Boeing (BA) strike, will conspire with an already-deteriorating labor market to depress U.S. payrolls in the September employment report, scheduled for release on Oct. 3, raising the risk of an outsize drop in jobs for the month. We also expect a further rise in the unemployment rate to 6.2% from 6.1%, given expected payroll weakness, a deteriorating trend in weekly initial jobless claims, and a falling labor market reading in the last consumer confidence report.
We expect payrolls to fall by 100,000 in September, with a drop that may exceed the 101,000 June decline to mark the biggest pullback in payrolls since March 2003, when hiring paused with the uncertainty at the onset of the War in Iraq.
The expected 6.2% unemployment rate would mark the highest level since June 2003. The average workweek should hold at 33.7 hours, and average hourly earnings should rise 0.3%, to leave year-over-year hourly earnings growth a tick below the 3.6% rate posted in August.
Blown Away
Looking at the data we normally use to derive out forecast, the September ADP Employment survey, released on Oct. 1, revealed a notably small 8,000 drop in private-sector employment.
The weekly initial jobless claims data and continuing claims figures have clearly shown a notable hurricane distortion over the past couple of weeks, with the Bureau of Labor Statistics indicating that initial claims for the week of Sept. 20 were boosted by about 50,000 because of Hurricane Gustav. The data suggest that the hurricanes have been disruptive to the labor market, although the key question remains to what degree these hurricane disruptions will be captured by the September employment report.
The Michigan Consumer Sentiment survey and the Conference Board survey have both bounced through September, with gas prices notably subsiding in August and early-September following the spectacular run-up through the first half of the year. In June, the Michigan survey fell to the lowest level since May 1980, while the Conference Board survey dropped in June to the lowest level since March 1992. The bounce since then, led by the expectations component, still leaves these series at historically depressed levels that have only been seen previously in recessions. The current component, which tends to be more driven by labor market activity, has remained weak. These figures are still consistent with labor market weakness.
And of particular note, the labor market differential from the consumer confidence report has trended steadily lower with the rise in the jobless rate, and this measure fell further to -20.6% in September, down from -18.2% in August.
General Attrition
The employment components from the various factory sentiment surveys continue to generally be consistent with continuing job attrition in the manufacturing sector, though with little evidence of a weakening in September and perhaps evidence on net of a modest bounce.
But our September forecast also factors in some special distortions:
Boeing Strike: On Sept. 6, 27,000 machinist union workers went on strike. Our guess is that all of these workers will be subtracted from the payroll report, with risk of an additional 8,000 temporary layoffs in related companies. This would leave an overall Boeing strike impact of 35,000.
Hurricanes: Gustav made landfall on Sept. 4. The more damaging Hurricane Ike landed on Sept. 13. While payrolls and the household employment measure typically show little impact from hurricanes, it should be noted that Hurricane Katrina had a huge impact in September 2005, when the BLS initially estimated that the storm subtracted 230,000 from payrolls. The household employment measure also notably fell that month, although the volatility in the series makes it difficult to read much into any monthly swing. With Katrina, the industries that revealed the biggest payroll hit relative to trend were: Trade/Transportation & Utilities, Retail Sales, Leisure & Hospitality, and Government.