Lackluster August Jobs Report Overshadowed by Hurricane Harvey

Fed likely to pause this month after August jobs are less than impressive and the impact of Hurricane Harvey is formulated

By Steve Hovland
Director of Research
HomeUnion

August Jobs Graph

The U.S. added 156,000 jobs during August, modestly below expectations, which we’ve come to expect during this summer month. With many survey participants on vacation, and other seasonal factors at play,  August is notoriously difficult to seasonally adjust on a first pass. Nonetheless, the impact of Hurricane Harvey will overshadow this jobs report since the storm occurred outside of the data collection period.

Natural disasters can have significant influence on the economy, but early estimates on the gravity of a storm’s economic costs are often overblown. Local populations are generally shouldered with an overwhelming share of the aftermath burden, while the national economy quickly adjusts. From a macro perspective, storms destroy supply and create demand, so there’s generally a boost to the nation’s economic base. Unfortunately, those in the storm’s path are least equipped to manage the rise in demand, so nearby economic powerhouses step forward to support efforts.

Similar to the role Houston played after Hurricane Katrina in 2005, Dallas/Fort Worth and San Antonio will support the recovery of the nation’s fifth-largest city. Short-term rental demand will surge in areas near the storm, and some residents are likely to relocate permanently. Workers by the thousands will arrive to begin fixing roofs and other damage covered by the billions of insurance and federal aid dollars that will be pumped into Houston. Rebuilding efforts will take less time than many expect, and much of the work will be done before the end of the year.

The typical lackluster August jobs report and Hurricane Harvey have decreased the chances of a Fed rate hike this month to near zero. Our forecast entering 2017 called for three rate hikes, with the Fed taking a pass only at the September meeting. The next meeting with a scheduled press conference will be in December, when we believe the Fed will lift rates for the third time in 2017. From a homebuyer and investor standpoint, we expect interest rates to remain attractive into the offseason. Furthermore, saber rattling by North Korea will persuade some investors into Treasuries, applying additional downward pressure on interest rates.

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