Hurricane Irma, jobless claims and economic growth
Irma, the devastating hurricane that hit Florida with its full force, was not as destructive as it could have been. But the impact on the economy, beginning with unemployment, has already been felt.
As the Hurricane made its way toward the US mainland, damage estimates ratcheted up. But the ‘Bermuda High’ dampened the impact. Here’s how Bloomberg describes it:
The credit goes to the Bermuda High, which acts like a sort of traffic cop for the tropical North Atlantic Ocean. The circular system hovering over Bermuda jostled Irma onto northern Cuba Saturday, where being over land sapped it of some power, and then around the tip of the Florida peninsula, cutting down on storm surge damage on both coasts of the state.
So while Irma was very deadly, Irma now ranks behind even Harvey in terms of the likely damage it will have caused. Nevertheless, the impact is already clear in the numbers. If you look at the jobless claims number released today, for example, we were at 284,000 last week and 298,000 the week before after months in the 240s. This takes the 4-week average number up to 263,250, a level, if sustained, would ring alarm bells.
The key word there is ‘sustained’ because we’re talking about first-time claims. We should expect the first-time claims numbers to recede in the next couple of weeks. But the claims figure bears watching because it is some of the best real time information we have about economic stress on the economy.
Moody’s estimates the cost of Irma and Harvey – including both property damage and lost output – will likely be somewhere between $150 billion to $200 billion. That has Goldman cutting Q3 real GDP growth estimates by 0.8%. Moody’s itself has downgraded growth estimates by 0.5% for Q3. These are relatively large but not alarming numbers.
I don’t see the US economy at stall speed now. We would have to see rolling year-over-year real GDP growth dip significantly below 2% to, say, 1.5% to think there is any appreciable uptick in the likelihood of recession.
From an investing standpoint, the temporarily lower growth trajectory increases the likelihood that the Fed will pause on hikes. With the Fed now admitting it has lost some credibility on inflation, It also lowers longer-term inflation and rate expectations as well. That’s bullish for asset prices as long as the US recovery remains intact.