Markets & Finance

Jobs Report Won't Show Terror's Full Impact


The Sept. 11 terrorist attacks are largely expected to have a minimal impact on the September employment report, scheduled for release Friday, Oct. 5, since the attacks hit during the week the data was gathered. Standard & Poor's MMS expects nonfarm payrolls to decline by 60,000 for September, with the unemployment rate continuing to move higher -- rising to 5.0% from 4.9% in August.

Payrolls and the unemployment rate should therefore largely reflect trends that were in place prior to the attacks. There could be a tone in the report similar to recent months, with the October data likely to give a much better sense of how the attacks immediately affected the labor market.

Overall, recent more timely employment data have indicated that labor market conditions appeared to continue to soften prior to the attacks. The four-week average for continuing jobless claims climbed to the highest level since late 1992 for the September survey week. Also, the rate of insured unemployment climbed to 2.6% for the same week, well up from the cycle trough of 1.5% seen in April, 2000. The most recent "Help-Wanted" index is sitting at the lowest level since February of 1983.

And the consumer, long the stalwart of the U.S. economy, is beginning to take notice. The September consumer confidence survey revealed that the difference between those who see jobs as "plentiful" versus "hard-to-get" fell to 8.4% from 17.6%. Not only is this the lowest level since December, 1996, but it marked the largest one-month deterioration in the figure (-9.2%) since October, 1990. And given that layoff announcements were still piling up before the attacks, a lot of slack clearly sits in the pipeline.

As for the industry breakdown, similar to so many months this year, the bulk of the weakness is expected to come from the manufacturing sector, where factory jobs are expected to drop another 100,000 in September. In addition, the service sector is expected to continue to post little job growth on the month, which would be consistent with the deteriorating trend that has been evident in recent months.

But while both payrolls and the unemployment rate are not expected to be affected by the attacks, there is notable risk that the hours worked and earnings components of the report could be impacted. Firms closed for some part of the survey week could report a sharp drop in the workweek. And given that these employees still likely received the same pay, this could provide an aberrational rise in hourly earnings. This kind of distortion was seen as a result of large weather-related disruptions in the past. As such, S&P MMS expects the workweek to drop to 33.6 hours from 34.0 hours, while hourly earnings are seen rising to 0.4% from 0.3%.

Overall, the report will largely be used to firm up what conditions were like before the attacks. Given how much the attacks have changed the outlook, though, the market may show less interest in the report than usual. While we could see some early distortions from the attacks via the workweek and hourly earnings, it will not be until the report for October that we get a better sense for how the attacks immediately affected the labor market. And even here, given that employment is a lagging indicator, it could be several more months before the employment data capture the full effects of the attacks.

While the attacks will clearly depress the employment figures in travel-related industries over the next several months, the key will be whether weakness remains largely contained in this sector, or whether it spreads to other areas.


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