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The number of Americans filing for unemployment benefits jumped to a more than two-year high last week amid a surge in applications in hurricane-ravaged Texas, but the underlying trend remained consistent with a strong labor market.
The surge in claims reported by the Labor Department on Thursday offered an early glimpse of Hurricane Harvey's impact on the economy. The storm unleashed unprecedented flooding in Houston, disrupting oil, natural gas and petrochemical production and forcing a temporary closure of refineries.
As Texas tries to recover from the late August storm, Florida is bracing for Hurricane Irma, which is expected to make landfall over the weekend.
Economists say Harvey could put a dent in third-quarter gross domestic product and hold back job growth in September. But they expect any lost output to be recouped in the fourth quarter and payrolls growth to rebound in October.
"The near-term economic impact of what increasingly appears to be two severe natural disasters in close proximity to one another will be a clear negative," said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan. "Having said that, the national economy appears to remain on track."
Initial claims for state unemployment benefits surged 62,000 to a seasonally adjusted 298,000 for the week ended Sept. 2, the highest level since April 2015, the Labor Department said. The weekly increase was the largest since November 2012. A Labor Department official said last week's data had been impacted by Hurricane Harvey.
Unadjusted claims for Texas surged 51,637 last week as some people found themselves temporarily unemployed. That accounted for 95.6 percent of the increase in unadjusted claims last week.
Economists had forecast claims rising to 241,000 in the latest week. Claims could stay elevated for the next few weeks.
Labor market firming
Despite last week's jump, claims remained below 300,000, a threshold associated with a robust labor market, for the 131st straight week. That is the longest such stretch since 1970, when the labor market was smaller.
The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, increased by 13,500 to 250,250 last week, still suggesting the labor market continues to strengthen.
There are concerns, however, that disruptions from the flooding in Houston could hurt job growth in September. Employment in Houston is a little over 3 million.
"If employment were to decline by just 5 percent, that would mean a job loss of 150,000," said Michelle Girard, chief economist at NatWest Markets in Stamford, Connecticut. "We do not rule out the possibility of a negative payroll print in September, especially given the potential for further damage from Hurricane Irma."
The economy created 156,000 jobs in August, a slowdown in job growth that was largely blamed on a seasonal quirk.
Economists did not expect the temporary headwinds from the storms to stop the Federal Reserve from announcing a plan later this month to start shrinking its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities accumulated as it sought to stimulate the economy.
The dollar fell against the euro as the European Central Bank signaled it was preparing to scale back its $2.75 trillion stimulus program. Prices for U.S. Treasuries rose, while stocks on Wall Street were little changed.
In a second report on Thursday, the Labor Department said worker productivity increased at a 1.5 percent annualized rate in the second quarter, revised up from the 0.9 percent pace it reported last month.
That followed a 0.1 percent rate of increase in the first quarter. Despite the upward revision to productivity, the trend remains weak, suggesting it would be difficult to achieve robust economic growth.
President Donald Trump has vowed to boost annual growth to 3 percent through tax cuts, infrastructure spending and regulatory rollbacks. Compared to the second quarter of 2016, productivity increased at a 1.3 percent rate, instead of the previously reported 1.2 percent pace.
With productivity rising, unit labor costs, the price of labor per single unit of output, increased at only a 0.2 percent pace in the second quarter, revised down from the previously reported 0.6 percent pace.
"The data do nothing to suggest a change in the three key underlying trends noted in previous reports - slow productivity growth, sluggish real wage growth, and low wage inflation," said Patrick Newport, a U.S. economist at IHS Markit in Lexington, Massachusetts.