US: Hurricane affects evident on economy - NAB

Tony Kelly, Senior Economist at NAB, explains ha some US activity indicators have been clearly affected by recent hurricanes – the impact is likely to be transitory and the economy remains on track.

Key Quotes

“The Administration and congressional Republicans took a step forward on tax cuts, consistent with a small fiscal stimulus, although it is not certain that it will be passed by Congress. Inflation is expected to trend back up towards the Fed’s 2% over target, leading to further fed funds rate increases, but risks are to the downside.” 

“Not unexpectedly, the effects of the recent major Hurricanes affecting the US are clearly evident in some of the economic data.”

“Industrial production fell in August, its largest monthly decline since 2009, as did retail sales. There was a decline in house sales but it was similar to that seen in July. In contrast – as has been the case with past Hurricanes – there was no obvious impact on the construction data, and core capital goods shipments and orders also appeared unaffected.”

“In a sign that reported activity might bounce back strongly, auto sales more than made up their August loss in September. This was despite Hurricane Irma that hit Florida that month.”

“The labour market report was little affected in August as the survey week fell before the first major hurricane. However, September’s report was eye catching with a decline in non-farm employment of 33,000; the first monthly fall since late 2010. However, the household survey employment measure (which is more volatile) went in the opposite direction – rising by over 900,000 and the unemployment rate fell 0.2ppts to 4.2%.”

“According to the Bureau of Labor Statistics (BLS) analysis, the non-farm employment numbers were affected by the hurricanes, but there was no discernible effect on the unemployment rate.”

“Hourly wages growth also accelerated in September. Most of the job losses were in the low paying leisure & hospitality sector. However, after adjusting for this, wages still grew above 0.40% mom for the second time in three months, a strong growth rate.”

“Initial jobless claims are another measure of the labour market. They spiked post Hurricane Harvey and, while they have come off their post Hurricane Harvey peak, they remain above recent lows, with a fall in Texas claims being partially offset by a rise in Florida (Hurricane Irma). With the rise in claims centred in states affected by hurricanes and continuing claims being little changed (suggesting job impacts are not long lasting) these data also suggest a noticeable, but temporary, impact from the hurricanes.”

“Overall, we continue to expect the hurricanes will have only a temporary impact on US data indicators. At this stage we have not made any major changes to our September quarter GDP forecast.”