Jobs Rise, but Effect of Crisis Is Ahead
Measuring the calm before the storm, the Labor Department reported Friday that the economy enjoyed healthy pre-Katrina job growth in August while the unemployment rate fell to a four-year low of 4.9%.
But Hurricane Katrina will probably end the economy’s 27-month streak of job gains. Katrina’s effects -- not only on the Gulf Coast regions where it struck but also on the national economy via higher energy prices and disrupted ports -- could result in the loss of as many as 500,000 jobs in September, analysts said.
“From Boom to Gloom” was the headline that Wells Fargo senior economist Eugenio J. Aleman put over his weekly economic analysis.
U.S. employers generated a net gain of 169,000 jobs in August, compared with an average of 189,000 for the previous 12 months. The government also revised Friday its data for June and July, increasing the payroll growth during that two-month period by 44,000 jobs.
The unemployment rate, down from 5% in July, was the lowest since the month before the terrorist attacks of Sept. 11, 2001.
Some economists said the economy, almost four years into the recovery from the 2001 recession, was better positioned to withstand an external shock than it was after the 2001 attacks, when the country was already in recession. But other analysts said the recovery had grown precarious and Katrina might put it over the edge.
David Kelly, managing director of Putnam Investments in Boston, estimated that 200,000 to 400,000 of the 1 million workers in the 11 hardest-hit counties of Louisiana, Mississippi and Alabama would have no jobs to return to at least for a while. That estimate seemed to be in the middle of the range.
Toward the gloomy end of the spectrum, Ian Shepherdson, chief U.S. economist with High Frequency Economics in Valhalla, N.Y., predicted that the September report would show a loss of 500,000 jobs nationally.
Toward the other end, William Hummer, chief economist of Wayne Hummer Investments in Chicago, said the nation as a whole might gain jobs in September, even though he ratcheted down his estimate of 2005 economic growth to 3.4% from 3.7% to account for Katrina.
“The number of people who will lose jobs is insignificant on a national scale,” he said.
Hummer, however, did not share the widely held view that the economy was well-positioned to absorb Katrina’s blow. He said a combination of factors, including record oil prices, rising interest rates and a personal saving rate that turned negative in July, already threatened the expansion that began at the end of 2001.
“Katrina adds pressure to an already dismal situation,” he said. “The timing could hardly have been worse.”
On a local scale, Katrina did its worst damage in three states that have hardly counted among those driving the economic expansion. Jobs in Louisiana, Mississippi and Alabama have been growing only slightly.
But economists cautioned against taking too narrow a view of the hurricane’s effect. Although Louisiana and Mississippi account for only about 2% of the nation’s economic output, “ripple effects on the nation’s vital transportation and energy infrastructure already have been pronounced,” said Lynn Reaser, chief economist for the investment strategies group at Bank of America.
New Orleans, she noted, is the exit point for nearly 60% of the nation’s grain exports.
More significant, she said, is the “temporary” loss of the oil refineries that punctuate the Gulf Coast. Gasoline prices have soared, pinching both consumer and business confidence. “If gasoline and energy prices cool off” quickly, she said, “economic damage should be contained.”
The strength of the rebuilding of the Gulf Coast also could depend on whether the Federal Reserve suspends its program of raising its benchmark short-term interest rate by 0.25 percentage point at each regular meeting of its policymaking committee. Some economists predicted that the Fed might pause at its next meeting, Sept. 20.
Economists said job losses would ultimately be matched or even exceeded by gains in reconstruction jobs in the devastated areas. But the people who lose their jobs will not necessarily land the new ones.
“Toward the end of 2005, we’ll see a big lift in construction jobs, but many of them will be filled with migrants,” said Roger Tuterow, dean of Mercer University’s Stetson School of Business in Atlanta.
“If you were a pit boss in the Mississippi casinos,” he said, “you’re not necessarily qualified to rebuild your casino.”
The Labor Department’s job report continued to show good news for inflation but bad news for workers, with wages rising more slowly than they typically do when the economy grows.
Hourly wages grew 0.1% in August and are up by 2.7% for the last year, during which the cost of living has risen by 3%.
“It’s good news for inflation,” said Kelly of Putnam Investments, “but it’s leaving plenty of workers feeling squeezed by higher prices.”