“We see a subdued employment picture as a result of Hurricane Sandy and only expect a modest rebound in hiring in subsequent months pending a resolution to the fiscal cliff,” Barclays economist Michael Gapen said in a note to clients.
November’s payroll survey was conducted, as normal, in the week including the 12th. The sustained spike in initial jobless claims in the first three weeks of November, which isn’t that much smaller than the spike after Katrina, suggests there will be some lingering effects. Sandy hit New Jersey, New York and other nearby states in late October and at its peak left 8.5 million without power.
The Labor Department will release the November jobs data on Friday at 8:30 a.m. EST. Economists expect nonfarm payrolls to show a gain of just 93,000 in November -- a steep drop from the 171,000 jobs created a month earlier. That would be the fewest number of jobs created in five months and well off the average 168,000 monthly hiring posted over the August-October span.
“We would be surprised if Superstorm Sandy didn’t put a sizeable dent in employment,” noted Paul Dales, senior economist at Capital Economics. “After all, the 11 States affected account for almost one quarter of the nation’s economic output.”
Forecasting the monthly jobs number has never been easy, but this month, economists are finding themselves in a wild guessing game because of the Sandy-related distortion. Projections provided by the 92 economists polled by Thomson Reuters ranged from a gain of 20,000 jobs to a gain of 180,000.
Meanwhile, the unemployment rate is expected to hold steady at 7.9 percent in November.
A similar jobs report put out by payroll giant ADP came out on Wednesday, which serves as a curtain raiser.
ADP's report revealed that U.S. private employers added 118,000 jobs last month, which fell short of expectations. ADP indicated that 86,000 jobs were sliced from the market because of Sandy.
“We suspect that Superstorm Sandy could have an even bigger impact on the official non-farm payroll figures … because the ADP survey counts people as employed if they were still nominally on the payroll, whereas the official BLS establishment survey only counts people as employed if they were actually paid,” said Paul Ashworth, chief U.S. economist at Capital Economics, in a note.
It’s worth noting that ADP's report Wednesday is only the second produced based on the new methodology, so the accuracy of its projections is unproven.
Also complicating November’s employment picture is the strike by Hostess Brands Inc.’s workers. They were not paid during the time of the strike, and thus were not counted in the payroll figures. The maker of Twinkies and Wonder bread announced on Nov. 22 it would shut down and layoff 15,000, some of which could show up in the November jobs report.
“The looming fiscal cliff is probably having a growing impact on employment as well, with employers worried that Congress might not reach an agreement, which would plunge the U.S. economy into recession next year,” Capital Economics Chief U.S. economist Paul Ashworth said in a note.
There are a little more than 10 working days between now and Christmas, not much time to solve the fiscal cliff, let alone put the U.S. on a sustainable fiscal path. Actually, the last Congressional session of the year is scheduled for December 14, though most experts think Congress will be forced to work past that date.
“Given the tight legislative calendar and the two parties’ gaping differences of opinion, we see a strong possibility that policymakers will ‘go over’ the cliff, raising questions about how quickly a resolution can be reached before serious damage is done to economic activity and financial markets,” Gapen said.
Businesses are already showing a reluctance to spend and hire, fearful the government may fail to steer clear of the $600 billion in automatic tax hikes and government spending cuts set to take hold at the start of 2013.
The Federal Reserve’s November Beige Book, a report on current economic conditions, particularly noted that "contacts in a number of Districts expressed concern and uncertainty about the federal budget, especially fiscal cliff."
Manufacturing Treading Water
U.S. manufacturers have already reported that November was tough and that the industry shed jobs. The ISM manufacturing index came in below the 50 breakeven level at 49.5 in November -- that is the lowest level since July 2009 and is down from October’s level of 51.7. Since the June report, the ISM manufacturing index has been below the 50 breakeven level four out of six times suggesting that the manufacturing sector is just treading water.
The employment index fell to 48.2 in November down from 52.1 in October. That is the lowest level since September 2009. Economists surveyed by Thomson Reuters expect the manufacturing sector to shed 5,000 jobs in November, after gaining 13,000 jobs in October.
The fiscal cliff was high on respondents list of worries. For example, fabricated metal products respondents said that “the fiscal cliff is the big worry right now. We will not look toward any type of expansion until this is addressed; if the program that is put in place is more taxes and big spending cuts — which will push us toward recession — forget it.”
In September, the Federal Reserve launched a program to buy $40 billion worth of mortgage-backed securities every month and said it would keep buying until there was a sustained improvement in the jobs market. Those purchases come on top of the $45 billion a month the Fed is buying in long-term Treasuries with proceeds from sales of shorter-term debt.
A majority, 27 of 29 economists in a Reuters poll, said the Fed will buy more Treasuries when its current Operation Twist program ends in December. Median estimates were for monthly buys of $40 billion worth of bonds.
The U.S. economy is expected to grow at a 1.6 percent annualized rate in the fourth quarter, according to the median forecast of over 60 economists polled by Reuters in November. That's down from the 1.8 percent in the October poll.
Many economists say the sub-2 percent growth rate is too slow to make much of a dent in unemployment. “Jobs growth is still not fast enough to significantly reduce the unemployment rate from the current 7.9 percent, although we might see a pick-up in the New Year if Congress can agree to avert most of the fiscal cliff,” Dales said.