When the Labor Department releases its November job growth estimates tomorrow, many are bracing for it to be the smallest number since June. Economists surveyed by CNNMoney predict the number will come in at a lackluster 77,000 jobs, well below the average of 173,000 we’ve seen over the past four months. But for better or worse, the reason for the drop off will not be the fiscal cliff wrangling in Washington or fears that austerity may bring on another recession, but the lingering effects of Hurricane Sandy.
So how is it that a more-than-month-old storm could affect tomorrow’s jobs report? The Labor Department determines the total number of jobs added each month by surveying employers, and asking them how many people it issued a paycheck to in a pay period that includes the 12th day of the month. Back on the 12th of November, many businesses were still dealing with the effects of the storm. Any worker that didn’t receive a paycheck because of the storm would not be counted as employed according to the survey.
In addition, economists say that businesses put off hiring because of the disruptions caused by the storm. “Similar to much of the November data, this Friday’s employment report will be severely impacted by Hurricane Sandy,” Deutsche Bank economist Brett Ryan told CNNMoney.
Similar dynamics depressed the payroll firm ADP’s estimate, released yesterday in conjunction with Moody’s Analytics, of private-sector jobs added November. The report showed a 118,000-job gain, but that the economy could have done better absent the storm. Mark Zandi, Chief Economist of Moody’s Analytics, said in a statement:
“Superstorm Sandy wreaked havoc on the job market in November, slicing an estimated 86,000 jobs from payrolls. The manufacturing, retailing, leisure and hospitality, and temporary help industries were hit particularly hard by the storm. Abstracting from the storm, the job market turned in a good performance during the month.”
There’s historical evidence to back up the claim that a major storm can reduce job growth in the months afterwards. As Calculated Risks’ Bill McBride points out, following Hurricane Katrina in 2005, “employment gains dropped sharply for the next two months.” The economy had added 245,000 in the four months before the storm, but then it slumped, adding 66,000 and 80,000 jobs respectively in the two months after the storm. “Katrina was a much larger storm, and large areas were devastated, but Sandy struck an area with a much larger population — so the impact on employment might be similar,” McBride notes.
And if the ADP report is correct, and the economy would have added more than 200,000 jobs last month, which would have been the best showing in nearly a year. So a poor jobs report tomorrow doesn’t necessarily signal that the economy is slowing back down.