Helene, Milton, and the economy: What to expect

Hurricane Helene last month delivered a 600-mile path of destruction through six states—Florida, Georgia, South Carolina, North Carolina, Tennessee and Virginia—and Hurricane Milton followed with a second blow last week across central Florida.

After September’s surprising boost in job gains delivered clarity on the strength of the U.S. economy, Helene and Milton are likely to influence economic data in the weeks and months ahead. Here’s what to watch.

A drop in hours worked

The first place we’re likely to see the hurricane effect is in average hours worked. For millions of people and establishments, daily routines have been displaced by recovery efforts as communities confront the damage caused by widespread flooding, tornadoes, and power outages.

Severe weather “typically, but not always, results in a reduction in average weekly hours,” according to the Bureau of Labor Statistics.

Hours worked already have been edging down since April 2021. Despite September’s blockbuster hiring—254,000 jobs created—average hours worked last month dipped to 34.2 a week from 34.3 in August. This downward trend might make the hurricane effect seem more pronounced.

Moreover, the hurricane pall on hours worked will feed into measures of productivity and hourly wages. These metrics are important indicators of the path of inflation.

Stable wage growth and productivity gains help keep inflation in check. A clouded view of these metrics due to the hurricanes’ impact might make it harder to gauge the economy’s progress on inflation going forward.

A wrench in short-term measurement

Both BLS non-farm payrolls data and the ADP National Employment Report base their job estimates on a reference week that includes the 12^th day of the month. Hurricane Helene landed after the reference week in September; Hurricane Milton hit the Florida coast during the reference week in October.

The ADP National Employment Report counts the number of people employed by establishments that use ADP payroll systems. The BLS uses a monthly survey to report the number of people who were paid by establishments, not just employed.

Though these two data sets show similar trends over time, the differences in their underlying data might lead to a divergent trend in October. Moreover, it might take BLS longer than usual to survey establishments in regions hit hard by the hurricanes, which could make the first print of government estimates subject to greater revision.

ADP provides weekly data from the previous month, which will help businesses, economists, and policymakers track how the hurricanes affected employment in October.

While it’s an open question how much the regional effects of Helene and Milton will influence national data, we did get a preview in last week’s jobless claims, which jumped from a September average of 224,250 to 258,000 in the first week of October, as Helene recovery was under way.

A bumpier path on inflation

Inflation data released last week showed that the Consumer Price Index edged down in September, but by less than economists expected. Headline inflation rose 2.4 percent, compared to an estimated 2.3 percent. Core inflation, which measures inflation stripped of volatile food and energy prices, is up 3.3 percent over the last 12 months, a tick up from 3.2 percent in August.

Now comes the puzzle. Weather events can temporarily disrupt the supply chain and lead to higher inflation. Whether inflation rises in the coming months, and how long it might last if it does, is difficult to guess. Core inflation ticked up before the hurricanes, but we will have to see whether flooding, power outages and work stoppages boost future inflation.

My take

Historically, even extremely damaging weather events have inflicted only temporary pain on the national economy. However, the timing of this season’s hurricanes, on the heels of a blockbuster September jobs report and nearly aligned with a Federal Reserve rate cut, make deciphering the current state of the economy a challenge.

Economists sometimes blame the weather when their predictions don’t pan out. But what economists get right is that we don’t base economic trends on one or two data points.

October data is bound to be messy. Give the clouds time to clear before coming to any conclusions about the economic outlook for the last three months of 2024.

The week ahead

Thursday: Retail sales is the number to watch this week. Retail data from the Census Bureau tends to be soft in September as consumers prepare for the holiday shopping season. However, a sharp decline could signal weakness. Retailers typically collect about one-fourth of their annual revenue in the last three months of the year.

What will get less attention this week is the Federal Reserve’s industrial production and capacity utilization report. Anyone trying to assess what’s in store for manufacturers in the final three months of 2024 can’t ignore this data. Capacity utilization, a measure of manufacturing efficiency, has been running about 2 percent below its historical average. An increase would spell good news for the economy.

Friday: Residential construction data rounds out the week. Single-family housing starts were up almost 5 percent in August from a year ago. A continued growth spurt, fueled by falling mortgage rates, would be a welcome development in the affordability- and supply-challenged housing market. It would mean good news on the inflation front, too.