How’s The Economy Doing? Hurricanes Will Make It Harder To Tell

Some important barometers about the health of the economy will become cloudier in the coming weeks as hurricanes Helene and Milton distort data.

The storms, which hit the Southeast in late September and early October, will affect reports on employment, inflation, growth, and other indicators, complicating the job of economists and policymakers who are looking for signals about the trajectory of the U.S. economy.

The garbled economic data may be among the less significant impacts of the storms, which killed at least 244 people across six states and caused as much as $81.5 billion worth of damage, according to an early estimate by CoreLogic. Still, the hurricanes struck at a time when officials at the Federal Reserve are closely watching figures to determine how quickly to cut the nation’s benchmark interest rate as they seek to bring the economy in for a “soft landing” from the post-pandemic burst of high inflation, making monthly reports more influential than usual.

“For some indicators, the distortions will be large enough—and their exact size uncertain enough—to obscure the economy’s underlying trend to some degree,” Ronnie Walker, an economist at Goldman Sachs, wrote in a commentary.

Storms Will Drag Down Employment

For example, the storms could increase the number of people who file for unemployment and reduce the number of people who reported being hired, influencing government reports on the labor market. Economists at Goldman Sachs estimated that the storms could reduce payroll growth in October by 40,000 to 50,000. By comparison, the economy added  254,000 jobs in September, continuing an unbroken streak of job growth going back to January 2021.

Fed officials are closely watching jobs reports for signs that the labor market is weakening. Faltering job growth could spur the Fed to reduce interest rates faster, putting more downward pressure on borrowing costs for all kinds of loans and boosting the economy to prevent the unemployment rate from rising severely.

Decision-makers will have to determine whether any job slowdowns are because of broader economic trends or just a temporary drag from the hurricanes that could be expected to fade quickly. Walker said geographic breakdowns and commentary from the agencies producing the statistics could help clarify the data’s meaning.

Helene already boosted the number of unemployment claims, which are reported weekly, and forecasters expect to see a similar bump from Milton when the Department of Labor reports figures on Thursday.

If Milton causes a surge of unemployment in Florida, it’s possible the state could quickly bounce back. Recovering from the hurricanes is nothing new for Florida, and the jobless rate has quickly gone back down in the wake of previous storms as rebuilding efforts kicked in, Charlie Dougherty, an economist at Wells Fargo said in a commentary. The recovery timeline is less certain in the Appalachian states dealing with flooding caused by Helene, he said.

Storm Damage Could Drive Car Prices Higher

The hurricanes could also distort inflation data, further complicating the Fed’s job. The Fed’s interest rate hike campaign was meant to subdue inflation, and yearly price increases have fallen close to the Fed’s goal of a 2% annual rate. A resurgence of inflation could cause the Fed to delay further rate cuts.

If next month’s inflation reports show prices rose quickly in October, that could partly be due to the hurricanes as well. As economists at Goldman said, the hurricanes destroyed many cars, possibly pushing up prices for new and used vehicles.