Economy Adds 169,000 Jobs, but Storm’s Impact Not Yet Felt
09/02/2005
By EDMUND L. ANDREWS
NY Times
Published: September 2, 2005
WASHINGTON, Sept. 2 - The nation’s pace of job creation remained strong in the weeks before Hurricane Katrina as the unemployment rate edged down to its lowest level in five years, the government reported today.
But the healthy news on job creation came as outdated news to many economists and investors, who have begun bracing for at least a temporary slowdown as a result of soaring fuel prices and the hurricane damage to oil refineries and transportation networks tied to New Orleans.
In addition, the hurricane has displaced hundreds of thousands of people from their homes and their jobs, and many may have lost both permanently.
The Labor Department estimated today that the United States added 169,000 jobs in August and said the unemployment rate declined to 4.9 percent in August from 5.0 percent in July, the lowest rate since August of 2001.
The growth in payrolls in August was lower than Wall Street forecasters had been expecting, but the Labor Department also calculated that the nation generated 44,000 more jobs than in June and July than it originally thought.
Taken together, the new data showed that companies expanded their work forces by an average of 195,000 jobs a month over the past three months - a pace that suggested the economy was not slowed much by the run-up in gasoline prices earlier this summer.
That would have been encouraging news to many forecasters, but it was overwhelmed by a growing expectation that Hurricane Katrina is likely to cause substantially slower growth for at least the next several months.
“This disaster is unleashing the type of energy supply shock that we had viewed as the economy’s greatest vulnerability,” wrote William C. Dudley, chief United States economist at Goldman Sachs, in a research note on Friday.
David Rosenberg, a senior economist at Merrill Lynch, noted that gasoline prices, adjusted for inflation, had now for the first time surpassed the records set in the early 1980’s and that the disruptions caused by the hurricane would affect the entire economy in the months ahead.
“It really transcends oil prices,” Mr. Rosenberg said. “It has to do with refining capacity and with the freight distribution network.”
The big question now is whether prices of gasoline and heating oil remain so high for the rest of the year that consumers are forced to cut back on spending and perhaps suffer a decline in confidence that causes a broader slowdown.
Moreover, the huge number of displaced people will weigh on the job market this month. One analyst, Ian Shepherdson of High Frequency Economics, suggested the total number of jobs could drop by as much as 500,000 in September. “Next month, payrolls will plunge,” he wrote in a note to clients.
Natural disasters like hurricanes and earthquakes usually cause a short-term dip in economic activity and a short-term rise in unemployment as a result of disruptions in the regions where they occur.
But that dip is often followed by faster growth as insurance companies and the federal government provide tens of billions of dollars for reconstruction efforts.
“In the long run, maybe we might even get a boost,” said Richard Yamarone, director of economic research at Argus Research in New York. “We have had some really old ports and infrastructure” that will now have to be rebuilt or replaced.
The jobs data today suggested that employers and consumers remained largely undaunted this summer, even though gasoline prices shot up well before the hurricane hit the Gulf Coast on Monday morning.
Job growth was strong across a wide swath of the economy, particularly in the leisure and hospitality industries to health care, construction and business services.
Manufacturing employment remained the most notable exception, declining by 14,000 jobs in August - the third monthly drop in a row for factory jobs.
Despite the low unemployment rate, workers once again appeared to have only limited power to bargain for higher wages. Average weekly earnings for production workers outside the farming sector climbed only 0.1 percent in August from July and were up 2.7 percent compared with one year earlier.
Put another way, wages did not keep up with the overall pace of inflation. But because labor costs have been climbing slowly, they have not yet become a source of worrisome inflation.