Katrina May Cut Payrolls by 500,000 This Month

Bloomberg
Sep. 02, 2005

Hurricane Katrina may cost 500,000 Americans their jobs this month, the biggest decline in payrolls in more than 30 years and a loss that will show up as early as next week in jobless claims figures, economists said.

``There are currently more than a million displaced people, and I don't expect many of them to be back at work by the time of the September payroll survey,'' said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York. Shepherdson estimated the drop in payrolls this month may reach half a million, the biggest decline since December 1974.

Because Katrina struck at the end of the month, it didn't influence August payrolls, which showed a 169,000 increase in jobs and a drop in the unemployment rate to a four-year low of 4.9 percent, the Labor Department said today. The ravaged Gulf Coast cities of New Orleans, Biloxi, Mississippi and Mobile, Alabama, account for about 1 million jobs, according to economists at Stone & McCarthy Research Associates in Princeton, New Jersey.

The government surveys businesses for the pay period that includes the 12th of the month. A worker is considered employed if he or she worked for at least one day during that time.

``It is hard to imagine that too large a percentage of these jobs will be sustained over the next few weeks,'' said Ray Stone, managing director at Stone & McCarthy, in a research report. ``Perhaps several hundred thousand'' of the workers in the region won't be able to return to their jobs soon enough to be counted as employed, Stone said.

Rebound

Some economists still think payrolls will increase this month. John Herrmann, director of economic commentary at Cantor Fitzgerald LP in New York, said he expects the hurricane to reduce payroll growth by about 100,000 jobs for the next month or two, followed by a rebound of about 200,000 jobs as rebuilding begins.

``Near term, we look for a little bit of head winds and then we should see the economy regain traction,'' he said in an interview today.

More troops arrived in New Orleans today to stop looting and gunfire as residents went without food, water and medicine for a fourth day. President George W. Bush visited the region after the Senate authorized $10.5 billion in emergency aid last night. There were explosions at an oil-storage facility on the banks of the Mississippi River this morning near downtown New Orleans, where gunshots hampered rescue attempts yesterday.

Katrina will have a ``tremendous'' impact on employment in the Gulf Coast region, Labor Secretary Elaine Chao said in an interview yesterday. ``It definitely will be devastating.''

Claims Figures

Still, ``we can hire people who don't have jobs now and employ them in the recovery and cleanup'' efforts, Chao said, adding that she's confident all the lost jobs eventually will be restored or permanently replaced with new ones.

The effects of the storm on economic data will start becoming apparent next week with the release of the weekly unemployment claims figures, economists said.

Claims often drop after a storm because the newly unemployed cannot physically make it into state agencies to file. That may not be the case this time, said Stone & McCarthy's Stone. It appears that government workers are making every effort to go to shelters in order to reach those in need quickly, Stone said.

``They are trying to be as flexible as possible and I do hope that can accommodate those people,'' he said. Claims are likely to average close to 400,000 over the next three to four weeks as more and more people are able to file, Stone said. The number of applications averaged 317,000 in the last four weeks.