How bad was the economic damage from Katrina? Monthly job data released by the Bureau of Labor Statistics (BLS) this morning-the first the major macroeconomic indicator reported since Katrina-reveals that job loss was not very severe. Payroll jobs declined by just 35,000, and the unemployment rate ticked up 0.2 percentage points to 5.1 percent.
To put these job losses in perspective, weekly initial jobless claims averaged 326,000 per week for the six months before Katrina hit, and 405,000 per week since. The Labor Department attributes the 363,000 new claimants for jobless benefits to hurricane-related displacement. That's a large number of displaced workers, but it is not so large relative to the vast U.S. workforce of 150 million people. And it is small relative to the million or more people displaced by the hurricanes, because many kept their jobs and the majority were children, seniors, and others who were not working. Roughly speaking, the 363,000 unemployed displaced workers add up to 0.2 percent of the national workforce, and so the rise in the national unemployment rate is wholly attributable to the hurricanes.
Of course, a 5.1 percent unemployment rate is very healthy from a macroeconomic perspective and is lower than any month from 2002 through 2004. We should not conclude that the loss of jobs due to Katrina, in itself, will pose a serious challenge to the economic health of the U.S. The displaced workers face arduous personal transitions, but the economy is likely to generate ample new job opportunities. Again, putting things in perspective, roughly 7.7 million jobs are lost per quarter in the U.S., while another 8.1 million are created per quarter, according to BLS data.
The potential for a recessionary response to hurricanes Katrina and Rita is not negligible, but that potential does not stem from these job losses. Jobs are more a consequence than a cause of economic decline. Instead, the potential recessionary triggers are (1) the loss of infrastructure and subsequent general inflation, (2) high energy costs and their impact on businesses, and (3) depressed consumer confidence and consumer behavior. Monetary tightening by the Federal Reserve is a sign that Alan Greenspan is more concerned with capping inflation than recessionary pressures, which may be an ominous sign for growth in the medium term.
The bottom line is that the next few months' job numbers will be much more important signals than today's about where the economy is heading.
Tim Kane, Ph.D., is Bradley Research Fellow in Labor Policy in the Center for Data Analysis at The Heritage Foundation.