In a bit of good economic news that drew only limited attention, the Labor Department said yesterday that U.S. employers added a net 169,000...
CHICAGO — In a bit of good economic news that drew only limited attention, the Labor Department said yesterday that U.S. employers added a net 169,000 new jobs last month, and the nation’s unemployment rate declined to a four-year low of 4.9 percent.
The solid jobs report, which normally would have drawn close scrutiny from Wall Street economy-watchers, was treated as irrelevant ancient history yesterday, however, because the nation’s economic landscape has been so altered by Hurricane Katrina.
“Next month, payrolls will plunge,” suggested High Frequency Economics economist Ian Shepherdson. “Our guess is negative 500,000.”
“Employment markets were solid on the eve of destruction,” said Wachovia economist John Silvia.
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Joel Naroff, of Naroff Economic Advisors, had similar sentiments.
“That only tells us where we were before Katrina hit. The September numbers will be dreadful,” he said.
Although the magnitude of Katrina’s blow to the nation’s economy — and labor force — has yet to come into focus, experts figure it’s a near certainty that the U.S. unemployment rate has already climbed back above August’s 4.9 percent level, and will move higher still.
Estimates of the number of Gulf Coast workers idled by Katrina run from 500,000 to as many as 1 million, though that blow to the nation’s payroll will be partially offset by the normal creation of new jobs elsewhere in the country.
For now, figuring out how many jobs Katrina has extinguished remains guesswork, in part because the situation remains so chaotic in much of the Gulf area, and in part because the storm is affecting the work force both directly and indirectly.
In predicting future unemployment levels, “all bets are off” since Katrina, said Sophia Koropeckyj, of the consulting firm Economy.com, though some experts were predicting that unemployment in the hurricane-hit region could reach 25 percent.
Hundreds of thousands of people who work in the offices, stores and restaurants of New Orleans are now jobless, as are employees of the storm-damaged granaries and chemical plants along the Mississippi River.
Most of those people are likely to return to work in weeks or months, and in that sense, those temporarily displaced workers’ brief stay on the rolls of the unemployed will be of limited economic significance. In addition, the reconstruction effort is expected to create a substantial but hard-to-predict number of new jobs.
But Katrina has also sent damaging ripples into the broader economy, and that collateral damage may prove the more lasting.
“As destructive as past storms have been, they didn’t leave an imprint on the U.S. business cycle,” noted JP Morgan economist Bruce Kasman. But Katrina “should prove to be the exception to the rule,” he said, noting damage to the nation’s already strained-to-the-limit petroleum refining capacity, which sent gasoline prices skyward through much of the country.
The initial impact of higher gas prices acts as a tax on consumers, reducing the amount of money households have to spend on groceries, appliances, theater tickets and other purchases. If fuel prices remain at high levels long enough, the costs cascade through the economy, dealing a second blow to consumers by forcing up the price of everything from food to manufactured goods.
Koropeckyj said high post-hurricane gas prices “will constrain growth in the remainder of the country as employers who have been reluctant to take on new workers due to their rising costs will shy further away.”
The U.S. economy has already been pinched this year by a big run-up in gas prices, which had finally plateaued not long before Katrina drove prices still higher.
Yesterday’s report of 169,000 new jobs for August landed a bit short of the 190,000 that economists had been forecasting. But many elements were positive: The percentage of people participating in the work force rose 0.1 percentage point to 66.2 percent, its highest level in two years.
“Most measures of the labor market indicate that the degree of slack is slowly disappearing,” Banc Investment Group economist Steven Wood said of yesterday’s report.