South-Westerns' Economic News Summaries
Despite Katrina’s Worst, U.S. Economy Loses Only 35,000 Jobs
Topic Employment, Unemployment and Inflation
Key Words

Hurricanes and Unemployment

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Reference ID: A137293033
News Story

Many economic analysts have been cautiously waiting for economic data related to the major devastation on the Gulf Coast by Hurricane Katrina. The first real measure of the economic loss was released by the Labor Department this week. The result: the economy, as measured by employment, declined at an unexpectedly modest rate in September.

The Department of Labor report indicated that the economy lost only 35,000 jobs and underlined the apparent strength of the American economy. This was the first contraction since May 2003, and represented welcome news to anxious economy watchers.

On the down side, the unemployment rate did rise for the first time in seven months, as it moved up from August’s 4.9 percent to 5.1 percent in September. The job losses appeared to be concentrated in the Gulf Coast disaster area—offset by strong employment growth in other regions of the country.

"The United States economy continues to impress with its resilience," said Scott Anderson, senior economist at Wells Fargo in Milwaukee. "The economic expansion will survive the hurricanes intact."

Philip L. Rones, deputy commissioner of the Labor Department's Bureau of Labor Statistics, told the Joint Economic Committee of Congress that employment growth outside the areas directly affected by the storm continued at a clip of about 194,000 new jobs a month, the same rate as the prior 12 months. This was consistent, he said, with a loss of about 230,000 payroll jobs because of Hurricane Katrina.

"This strikes me as unambiguously good news," said Richard DeKaser, chief economist at the National City Corporation in Cleveland. "This suggests that beyond the most severely affected areas the labor market continues to improve at a healthy clip."

Unfortunately, this “good news” scenario could get worse since the September employment estimates are likely to be revised—upward—in October and November. "There's no way we've seen all the storm-related layoffs in the data," said Jared Bernstein, a labor economist at the Economic Policy Institute, a Washington research institute.

The industry composition of job gains and losses from the effect of Katrina could be seen in the report. Employment in the leisure and hospitality industry, New Orleans’ biggest employer, fell by 80,000. Food service payrolls fell by 54,000. But temporary help services showed an increase of 32,000, partly bolstered by employment in the post-Katrina recovery effort.

Economists noted that employment growth could bounce back--experience from previous disasters indicates that job growth tends to rebound once the reconstruction effort begins. After Hurricane Andrew hit Florida in 1992, job growth fell from 137,000 in August to 37,000 in September, but payrolls bounced back in October by 173,000.

"This will probably not be that much different than other disasters," said Commonfund chief economist Michael Strauss. "It will have a greater magnitude. But the rebuilding process will probably strengthen growth."

The new employment estimates should be viewed with caution, since the Department of Labor had to make a number of simplifying assumptions to complete the report. "It's hard to do a household survey when the household isn't there," said John C. Robertson, senior economist at the Federal Reserve Bank of Atlanta. "The imprecision [for this particular report] has increased a lot."

One rather bold assumption used in the survey considered any business that could not be reached as operating. Not only was the business considered operating, it was considered to have kept all employees working at full capacity. Given the amount of dislocation that took place, this assumption could serve to understate the actual unemployment. Another assumption counted all workers who were being paid as employed, even if they were not working because their employer was underwater. These employees are not likely to be employed long. "We know that can't continue," said Loren Scott, an economic consultant and professor emeritus at Louisiana State University in Baton Rouge. Mr. Scott said. "My guess is we will get another ding when October numbers come out."

Questions
1.

Discuss the notion of “discouraged workers” as it relates to the article.

2. Visit the website for the Census Bureau and compare the current unemployment rates with the ones reported in the article.
3. In your own opinion, do you support the rebuilding of New Orleans on the basis of economic reasoning? Why or why not?
Source Eduardo Porter and Vikas Bajaj, “Job Losses Are Below Expectations”, The New York Times Online, October 8, 2005
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