Hurricane Harvey will distort measures of the U.S. economy in the weeks and months ahead, making it more difficult for economists and policy makers to gauge its trajectory at a sensitive time for the Federal Reserve.
Everything from jobless claims, which already surged in a report on Thursday, to gross domestic product and inflation will be knocked off course, with brief spikes across a wide range of reports, economists say. And that is before any impact from Hurricane Irma, which could devastate cities across the Southeast.
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It will be hard to discern whether bad reports result from storm damage and then whether good reports owe to the effects of rebuilding. The Fed, already struggling with conflicting signals as it decides the path of rate rises, must look through even greater volatility in inflation and other reports. It could be well into 2018 before the effects of the storms have fully washed out of economic data.
Forecasters in The Wall Street Journal's survey of economists expect the storm to reduce the pace of job gains by about 27,000 jobs a month in the third quarter on average, followed by little change in the fourth quarter and then a boost of 13,000 in the first quarter 2018, as many people find work rebuilding. Fed policy makers watch job growth closely for signs of whether the labor market is tightening.
Economists also expect the growth rate of gross domestic product, the broadest measure of goods and services produced across the economy, will fall by about 0.3 percentage points in the third quarter, followed by no effect on the fourth quarter, and a 0.2-percentage-point boost in the first quarter of 2018.
"The devastation in the surrounding Houston area, America's fourth-largest city, will be significant enough to negatively impact activity and employment nationally," said Chad Moutray, chief economist for the National Association of Manufacturers.
In the longer run, the storm isn't expected to have a lasting economic effect, with forecasts for GDP, unemployment, inflation and other major economic indicators unchanged for 2018 overall, according to the survey of 56 business, financial and academic economists from Sept. 1 to Sept. 5. In the months ahead, here is where economists say to watch for the storm's distortions.
Early evidence of the hurricane's impact on the U.S. job market came Thursday, when the Labor Department reported the largest one-week jump in initial jobless claims since the aftermath of superstorm Sandy in November 2012. It is likely only the beginning of a spike in unemployment filings.
In the weeks after Hurricane Katrina in 2005 and Sandy in 2012, jobless claims were highest not during the week of the storm, but two weeks after. Many who were out of work from the hurricane waited until the storm had passed to file their claims.
Compared with the week of the storm, initial jobless claims rose 23% in the second week after superstorm Sandy and 30% in the second week after Hurricane Katrina.
"Irma's right behind Harvey, so that could cause claims to spike again," said Ryan Sweet, director of real-time economics at Moody's Analytics.
Measures of inflation will soon reflect Harvey, with gasoline prices spiking due to disruptions to oil refineries in the Houston area. The national average gas price was $2.66 a gallon on Wednesday, according to the AAA, up from $2.35 a month ago.
Denton Cinquegrana, chief oil analyst of Oil Price Information Service, sees gas prices peaking near $2.75 before leveling off.
Energy prices make up 7% of the consumer-price index, with motor fuel accounting for nearly half of that. Already, the move in gas prices could raise the inflation rate, a key area of focus for Fed policy makers, by about 0.5%. With past major storms, the effect has faded within a few months. That added volatility could further sharpen the Fed's focus on core measures of inflation that exclude food and energy.
With gas prices up, consumers across the country will have less cash for everything else. Every penny increase in gasoline prices reduces consumer spending by $1 billion over the course of the year, according to Mr. Sweet of Moody's.
"Consumers are going to feel it in their pocket," Mr. Sweet said.
Consumer-spending measures may also show the impact of Houston being shuttered for so long. The city has nearly three million workers and produces about $500 billion a year of gross domestic product.
That is "a non-negligible economic impact, assuming 25% of Houston area output was idled for seven days," said Gregory Daco, chief U.S. economist of Oxford Economics.
Before the storm, Texas was on track for a 14% increase in housing starts this year, according to James Gaines, chief economist at the Real Estate Center at Texas A&M University.
In 2016, Houston alone accounted for about 4% of the nation's permitted housing. Now builders wait to assess the market as construction sites dry out -- and will compete for workers to rebuild and repair the city.
Destruction of homes and businesses doesn't show up in GDP figures, but it would show up in measures of household wealth. Many homeowners and businesses swamped by the storm didn't carry flood insurance, meaning that a large share of the over $100 billion in estimated damage could reduce household wealth.
"With so many homeowners uninsured, this is more akin to a wipeout of assets such as one would expect from a stock-market crash," said Constance Hunter, chief economist for KPMG, the accounting firm. "The effects are more negative and widespread."
But in a $19 trillion economy with 150 million workers, many of the effects will be hard to tell apart from the usual churning of such a large nation. Economic indicators can only measure so much of a storm's effect.
Ultimately, "the impact on individual lives will dwarf the economic dollar losses," said Lynn Reaser, a former Bank of America economist who is now a professor at Point Loma Nazarene University in San Diego.
--Laura Kusisto contributed to this article.
Write to Josh Zumbrun at Josh.Zumbrun@wsj.com and Sarah Chaney at email@example.com
(END) Dow Jones Newswires
September 07, 2017 16:19 ET (20:19 GMT)
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