MNI INTERVIEW: Texas Payrolls Seen Back at Trend by October

--Past Severe Weather Impacts on Job Growth Short-Lived, Fed Economist Tells MNI

--Labor Market Tightness in State Could Slow Recovery Response

By Jean Yung

     WASHINGTON (MNI) - The Federal Reserve Bank of Dallas estimates that

Hurricane Harvey subtracted between 70,000 and 90,000 jobs from Texas payroll

growth in September, but the effect is likely to be short-lived as statewide

jobs growth returns to trend as soon as October, a bank economist told MNI in an

exclusive interview. 

     The Fed bank expects job losses of between 37,800 and 60,400 for the state

in September rather than a gain of 29,800 had there not been a storm. For

October, it expects employers in the state to add 115,000 to 144,000 jobs rather

than 27,400 without any weather disruption, which will more than make up for

September's job losses.  

     "We expect the impact of Hurricane Harvey on Texas and the Gulf Coast to be

transitory in terms of employment and other business activity," regional

economist Laila Assanie said. 

     "We expect the long-term impact to be limited, because Houston should

rebound because it's the energy capital of the U.S. and it's a center for

business and trade. Other thriving parts of the Gulf Coast economy will recover

over the long term as well."

     Economist surveyed by MNI expect the United States to have added just

73,000 jobs in September though forecasts range widely from -25,000 to 125,000.

The economy has been seeing jobs growth at an average pace of around 180,000 per

month in the past year. 

     Seven severe weather events, defined as those causing over $1 billion in

damage, have hit the Gulf Coast since 1975. But the Dallas Fed's analysis of

these events shows declines in job growth tend to be limited and short-term,

despite the Gulf Coast recovering slightly more slowly than Texas overall. 

     The last time a hurricane barreled through the region was Ike in September

2008, a couple months prior to the global financial crisis spreading to Texas.

Near the peak of the business cycle, jobs along the Gulf Coast declined by

29,000 that September but bounced back by 16,000 in October. 

     "When we looked at employment data for the Texas Gulf Coast, which is the

area most impacted by hurricanes, we found that the impact on employment was

transitory," Assanie said. Though the disruptions wrought by Harvey are of a

larger magnitude than Ike -- damage estimates for Harvey range from $75 billion

to $100 billion, compared to $35 billion for Ike -- the effect is likely also

temporary as has been the case in the past, she said. 

     The immediate spike in initial jobless claims after Harvey struck was much

larger compared to Ike, which also led to widespread flooding in Houston. After

Ike, claims levels returned to trend within five weeks, but they may remain

elevated for slightly longer this time, Assanie said.  

     Overall, the Fed bank estimates jobs in the Gulf Coast will recover to an

annual growth rate of 1.5% to 1.6% by either November or December while the

state could see jobs growth of 3.1% to 3.2%. 

     "Even though Houston and parts of the Gulf Coast were affected, other large

metros in the state were not impacted at all, so the expectation is those metros

will continue to add jobs and offset the declines along the Gulf Coast," Assanie

said. 

     Supporting the prognosis is the fact that the Texas economy and labor

market had been robust this year. Through August, the state saw job growth at an

annual rate of 2.6%, slightly above the state's long-term rate of 2%, according

to the Fed bank's analysis. The unemployment rate in August had dropped to 4.2%,

the lowest since July 2007. 

     "It was a pretty healthy picture for Texas -- good solid growth and very

low unemployment," Assanie said. 

     With the unemployment rate at 4.2% and companies reporting difficulty

hiring, the state's labor market is "pretty tight," she said. "As labor demand

increases because of post-hurricane restoration work, that will likely

exacerbate the worker shortages and will push up labor costs and material costs,

especially in construction." 

     The Gulf Coast's capacity as an oil and gas hub also does not appear to

have been seriously disrupted. The Dallas Fed's monthly business outlook

surveys, released last week, all remained positive in September. 

     About half of Gulf Coast companies surveyed said they expect to find it

more difficult to hire workers over the next six months. However across the

state, just one in four of respondents said they expect more difficulty while

nearly 70% said they expect no change in their ability to hire workers. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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