The Non-Farm Payrolls report is coming out Friday, and there’s an added air of tension.
For one thing, it’s always a blue-chip report. For another thing, there’s been some weakish data lately. And beyond that, it addresses the November, which has definitely been impacted by sandy.
You can see the impact in this week’s chart of initial jobless claims, which jumped back above 440K recently. The last time there was an equivalently huge out-of-nowhere spike, was in 2005, when Katrina hit.
So how will this impact this Friday’s number.
Morgan Stanley economist Vincent Reinhart explains:
The impact of Hurricane Sandy is likely to lead to significant distortions in a wide range of economic data over the next couple of months, and the November employment report is near the top of the list. Based on the recent performance of jobless claims – and using Hurricane Katrina in 2005 as a benchmark – we estimate that disruptions associated with Sandy reduced payroll employment in November by about 125,000. Thus, our employment forecast for November, excluding the impact of Sandy, is +140,000.
The BLS is likely to provide some information regarding the impact of Sandy, but unfortunately their methodology doesn’t allow for a precise calculation (in a few weeks, the release of the detailed state-by-state results may provide a better assessment). As background, it’s worth noting that the initial reading for payroll employment in September 2005 was -35,000 and the BLS indicated that “total nonfarm employment would have increased by an amount in line with the prior year’s average” were it not for the impact of Katrina (at the time, the average payroll gain over the prior 12 months was +194,000). The BLS arrived at this conclusion by excluding all of the sample units in the disaster areas and calculating the change in employment for the rest of the sample. Of course, a similar exercise for Hurricane Sandy would lead to the exclusion of a much larger portion of the overall employment sample, making any estimate of the impact subject to a great deal of imprecision. So, while the BLS may provide some guidance, estimates of the impact of Sandy should be treated with caution at this point. In any case, the bulk of the jobs lost in November are likely to be recouped in December and January. Also, rebuilding efforts should lead to at least a modest boost in construction employment over the course of coming months, as was the case with Katrina.
So the bottom line is that the BLS will try to adjust for Sandy, but it will be dicey at first.
Big picture is that Sandy has had real economic impact, and over the coming weeks we’ll see what was hit, what was pushed back, and what will be compensated via reconstruction activity.