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Jobs: OK today, worse tomorrow
Oil prices didn't deter August job growth, but Katrina's impact could soon be felt.
September 1, 2005: 8:27 AM EDT
By Aaron Smith, CNN/Money staff writer

NEW YORK (CNN/Money) - The labor market might have weathered August despite record-high oil prices, but the devastation of Hurricane Katrina will take a big bite out of job creation for months to come, analysts said.

"I think Katrina's put the kibosh on this whole thing," said John Silvia, chief economist for Wachovia Bank and former senior economist for U.S. Senate Joint Economic Committee, referring to the job market. "You're going to lose so many jobs. It's going to take time to get this all back up."

On Friday the Labor Department is set to release its August employment report, with the consensus forecast at 190,000, down from the 207,000 new jobs reported in July. The report is based on a mid-month survey, and will not reflect the impact of Hurricane Katrina, which slammed into New Orleans on Aug. 29, near the end of the month.

Silvia said he is projecting a "fairly solid" report of 210,000 new jobs for August, with new hires in construction and the service industry offsetting the decades-long slump in manufacturing. But high oil prices, which reached $70.85 a barrel on Tuesday after Katrina trashed oil rigs in the Gulf of Mexico, have restrained the labor market from posting larger gains.

"I think oil prices are a concern for all firms trying to hire because in the very short run you can't change much [to make up for high costs,]" said Silvia. "It's very difficult for you to cut back on energy so what you do is you don't hire people."

The unemployment rate for August is expected to remain steady at 5 percent, the rate it fell to in July and the lowest rate in nearly four years. Hourly wages are expected to post a 0.2 percent monthly rise, which would be half the rise of 0.4 percent reported in July.

These numbers will look especially good in the next two or three months, when the paralysis of New Orleans ports drags down the national economy, said Silvia, who estimates between 80,000 and 90,000 new jobs in September and 100,000 to 110,000 new jobs in October.

But the U.S. economy will be saved by its resilience, said Lakshman Achuthan, managing director of Economic Cycle Research Institute, as he waved off apocalyptic scenarios about Katrina's wake.

"I don't think we're going to see jobs collapse or disappear," said Achuthan, who projects 200,000 new jobs for August. "There is a bit of fear in the air with what's been going on with oil prices and the hurricane that there's going to be some kind of collapse. But I think this economy is resilient."

But Atlantic hurricane season doesn't end until Nov. 30, fostering fears that another hurricane could sweep through the Gulf of Mexico just as oil rigs are going back on line. This catastrophic scenario could plunge the economy into a recession, said Hans Olsen, chief investment officer for Bingham Legg Advisers.

"This is expected to be one of the worse hurricane seasons, and so far they're right and we're only halfway through it," said Olsen. "All you have to do is pose the question: What if you had another monster storm in another few weeks, just as things are starting to come back on line? I don't know how you would avoid recession in that environment."

Further hurricanes aside, Mark Zandi, chief economist for Economy.com, believes the economy is strong enough for the Federal Open Mark Committee to ramp up the federal fund rate, currently at 3.5 percent, for an 11th consecutive time at its next meeting on Sept. 20.

"I think they're going to stick to their script, that they're going to continue to tighten at each meeting," said Zandi. The economist said that further tightening could help to hold off the specter of inflation, though if the fallout from Katrina is worse than expected it could prompt the FOMC to back off.

"Katrina is going to muck things up; it's just a question to what degree," said Zandi.

Hurricanes aside, the dog days of August are traditionally slow for hiring, said Richard Yamarone, who projects 110,000 new jobs for August.

"August isn't exactly a barnburner for job creation," said Yamarone, noting that there were 188,000 new jobs in August, 2004, with 2,000 in August, 2003 and 8,000 in August, 2002. "It didn't appear as if corporate America flicked on the hiring switch last month. I think there were a lot of problems plaguing big business. So I don't think we're going to get a big jobs number."

Yamarone expects a winter of discontent as employers continue to feel the pressure of high energy prices.

"I can't imagine that these energy prices aren't elevated through the winter," said Yamarone. "We anticipate even higher prices. Companies don't want to hire ahead of uncertainty."

To read the most recent jobs report, click here.  Top of page

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