US Labor Market Strengthens Amid Hurricane Helene and Upcoming Strike Distortions, Reports Reuters

By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans submitting new applications for unemployment benefits saw a slight increase last week. This uptick may be influenced by the aftermath of Hurricane Helene in the Southeast and ongoing strikes at Boeing and various ports, which could create short-term distortions in the labor market.

A report from the Labor Department indicated that the labor market remained stable at the close of the third quarter, a situation that may lead the Federal Reserve to hold off on making substantial interest rate cuts. Another report revealed that the services sector experienced its highest level of activity in over 18 months in September, thanks to significant growth in new orders.

Christopher Rupkey, chief economist at FWDBONDS, commented, "Currently, the labor market appears robust, and the economy seems to have avoided a significant downturn." He added that Fed officials are expected to refrain from aggressive rate cuts unless there is further deterioration in the labor market.

Initial claims for state unemployment benefits rose by 6,000 to a seasonally adjusted 225,000 for the week ending September 28. Economists had predicted 220,000 claims for that week. Unadjusted claims dropped by 1,066 to 180,647, although this decrease was less than anticipated based on seasonal adjustment models. Consequently, the seasonally adjusted claims increased, with only Michigan reporting filings exceeding 1,000.

Overall claims remain at levels indicative of a stable labor market, primarily supported by low layoff numbers. However, this stability may be disrupted following considerable destruction from Hurricane Helene, which impacted North Carolina, South Carolina, Georgia, Florida, Tennessee, and Virginia, resulting in over 160 fatalities and significant damage to infrastructure. U.S. Homeland Security Secretary Alejandro Mayorkas has stated that the recovery will be a "multibillion-dollar undertaking" spanning several years.

Strikes involving approximately 30,000 machinists at Boeing and 45,000 dock workers at East Coast and Gulf Coast ports are also anticipated to cloud the labor market outlook. While workers on strike do not qualify for unemployment benefits, their actions might disrupt supply chains and lead to temporary layoffs in related businesses. Boeing has implemented temporary furloughs affecting tens of thousands of its employees, and claims in Washington state—home to major Boeing facilities—have risen above recent averages.

Economists are divided on how significantly Hurricane Helene will affect unemployment claims, with some predicting a rise to 250,000 in the coming weeks, while others believe the impact will be minimal. J.P. Morgan economist Abiel Reinhart noted that the counties eligible for FEMA disaster relief account for about 20% of total employment. He added that even if claims in the affected Southeastern areas were to double or triple, the national impact would remain relatively mild and identifiable through state-level data.

On Wall Street, stocks were trading lower amid geopolitical concerns in the Middle East, while the dollar strengthened against a basket of currencies as a safe-haven investment. U.S. Treasury yields also rose.

UNEMPLOYMENT ROLLS REMAIN STABLE

The number of individuals receiving unemployment benefits following their initial claim, which serves as a proxy for hiring, decreased by 1,000 to a seasonally adjusted 1.826 million for the week ending September 21. These continuing claims have settled after reaching over 2.5-year highs in July, largely due to changes in Minnesota’s policy that allowed non-teaching staff to access unemployment aid during summer break.

The slowdown in the labor market is largely attributed to reduced hiring following 525 basis points of interest rate increases imposed by the Federal Reserve in 2022 and 2023 in an effort to combat inflation. The Fed recently lowered its benchmark interest rate by 50 basis points to the 4.75%-5.00% range, marking its first cut since 2020 as it acknowledged growing risks to the labor market.

Fed Chair Jerome Powell indicated that future rate cuts will likely be implemented in smaller increments, reflecting the economy’s resilience supported by revised upward growth data.

The economy has largely maintained its strength from the second quarter. A separate report from the Institute for Supply Management revealed that its non-manufacturing purchasing managers index (PMI) rose to 54.9 in September, the highest level since February 2023, up from 51.5 in August. A PMI reading above 50 signals growth in the services sector, which comprises more than two-thirds of the economy. While some employers in this sector are cautious with hiring, they are also facing challenges in finding qualified workers.

Financial markets expect the Federal Reserve to implement more rate cuts in November and December. The claims data are not expected to influence September’s employment report, as they fall outside the survey week. According to an estimate, nonfarm payrolls likely increased by 140,000 in September, following a rise of 142,000 in August. The average job gain over the past year has been 202,000 per month.

If the strikes at Boeing and the ports continue into next week, there could be negative effects on October payroll figures, just before the upcoming presidential election.

The unemployment rate is predicted to remain steady at 4.2% in September, having risen from 3.4% in April 2023 due to increased labor supply from immigration.

Bill Adams, chief economist at Comerica Bank, remarked, "The impacts of Hurricane Helene and strikes by dock workers and Boeing employees will complicate the near-term economic outlook."