Superstorm Sandy, fiscal cliff fears likely held down November hiring

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WASHINGTON — The combination of U.S. employers that shut down because of Superstorm Sandy and fears over looming tax increases and spending cuts slowed hiring sharply in November.

A private survey released Wednesday showed companies added fewer workers last month than in October. The same picture is expected when the government issues a more comprehensive jobs report for November on Friday.

Still, most analysts say the underlying economy remains healthy and is creating jobs at a modest but steady pace.

Economists expect Friday’s government report to show employers added 110,000 jobs in November, according to FactSet. And they think the unemployment rate will remain 7.9 percent.

Other analysts expect much lower job gains, roughly 25,000 to 50,000, because of Sandy and anxiety over the tax increases and spending cuts set to take effect in January.

Yet without the depressive effects of Superstorm Sandy, many think employers would have added up to 200,000 jobs last month – even stronger than the solid 171,000 jobs added in October.

“We don’t think the labor market has lost any underlying momentum,” said Paul Edelstein, an economist at IHS Global Insight. “We just have these two issues.”

Superstorm Sandy hit the East Coast on Oct. 29, closing restaurants, retailers and other businesses and cutting off power to 8 million homes in 10 states.

The government would count people who couldn’t get to work and weren’t paid as job losses, even if they were temporary. Those subtractions would reduce net hiring. Though Sandy shrank some company payrolls, it might not have affected the unemployment rate. The rate is calculated from a separate government survey of households.

The government asks about 60,000 households each month whether the adults have jobs and whether those who don’t are looking for one. Those without a job who are looking for one are counted as unemployed. Those who aren’t looking aren’t counted as unemployed.

Many workers who were temporarily dropped from payrolls because of Sandy would still consider themselves employed. As a result, the unemployment rate might not change much, if at all, for November.

Tens of thousands of people were put at least temporarily out of work. Two weeks after the storm hit, about 75,000 people in New York and New Jersey applied for unemployment benefits.

Several economists estimate that Sandy might lower the government’s count of company payrolls by as many as 150,000. Those estimates are based in part on the effects of previous storms, such as Hurricane Katrina in 2005.

Kevin Cummins, U.S. economist at UBS, noted that Sandy hit a heavily populated area where many jobs pay above-average wages. The average weekly pay figure included in the jobs report is likely to decline as a result.

ADP, a payroll provider, said Wednesday that private companies added 118,000 jobs in November, down from 157,000 in the previous month. Mark Zandi, chief economist at Moody’s Analytics, which helps compile data for ADP, estimated that the storm lowered the job gains by about 86,000.

But the payroll losses from the storm could be higher in the government’s total. That’s because ADP counts people as employed if they remain on a payroll – even if they’re not paid. By contrast, the government counts people as employed only if they’re paid.

The effect on hiring from impending tax increases and federal spending cuts – the “fiscal cliff”– is harder to quantify. Those measures are set to take effect in January unless Congress and the White House reach a budget deal first.

Companies might not be cutting jobs because of the fiscal cliff. But the uncertainty surrounding the outcome is likely delaying some hiring, economists say.

Carl Riccadonna, an economist at Deutsche Bank, said several reports show companies are spending less on large equipment. That suggests they’re probably postponing some hiring, too.

“We haven’t hit the cliff yet, but the downdrafts are already occurring,” Riccadonna said.

Measures of hiring fell in two surveys released this week by the Institute for Supply Management, a private trade group of purchasing managers. Some companies in the service sector told the ISM that economic uncertainty was delaying hiring.

Another complicating fact is that Thanksgiving came earlier in November than usual this year. That might have led some retailers and restaurants to hire more holiday season staffers in November than is typical, Cummins said. Those jobs would add to last month’s job gains.

All the cross-currents could make it hard to gauge the economy’s underlying health from the November report.

“This is a particularly bad time for anybody to jump to any business or investment conclusions based on one number,” said Jerry Webman, chief economist at OppenheimerFunds.

OTHER ECONOMIC NEWS

• U.S. service companies grew at a slightly faster pace in November because sales and new orders rose, a good sign for the economy. The Institute for Supply Management said Wednesday that its index of non-manufacturing activity rose to 54.7 from 54.2 in October. Any reading above 50 indicates expansion.

• Orders to U.S. factories rose modestly in October, helped by a big gain in demand for equipment that reflects business investment plans.

Factory orders edged up 0.8 percent in October, the Commerce Department said Wednesday. The increase slowed from a 4.5 percent jump in September.

• U.S. workers were more productive this summer than initially thought, while costing their companies less.

The Labor Department said Wednesday that productivity grew at an annual rate of 2.9 percent from July through September. That’s the fastest pace in two years and higher than the initial estimate of 1.9 percent. Labor costs dropped at a rate of 1.9 percent, more than the 0.1 percent dip initially estimated.

– Associated Press


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