The economy shed 33,000 jobs and the unemployment rate dipped to 4.2 percent in September, the Bureau of Labor Statistics reported Friday, thanks in large part to the destruction and disruption afflicted by a series of hurricanes that struck Texas and Florida. Economists had expected job growth to dip to 100,000.
The work stoppages induced by storms were enough to halt a seven-year streak of job growth, but it appears that those effects will prove only temporary, rather than a sign that the recovery has ended.
"The jobs situation is good," said Robert Frick, corporate economist for Navy Federal Credit Union, adding that "this is more of weather report than a jobs report."
Sharp declines in employment at restaurants and bars, which are highly sensitive to weather, accounted for much of the decline in employment, the bureau's commissioner noted. And 1.5 million employed people didn't work in the month because of bad weather in the month, the highest such number in two decades.
At the same time, the unemployment rate fell two-tenths of a percentage point to hit the lowest mark since February of 2001, and fell for the "right" reason -- because more people got jobs, not because the labor force diminished.
Even with Friday's hurricane-affected numbers, job growth is strong enough to continue driving unemployment down. Only around 100,000 new jobs are needed each month to keep unemployment stable, Federal Reserve chairwoman Janet Yellen said at a press conference in September. With Friday's report and net downward revisions to the past two months, job gains have averaged 91,000 over the past three months.
As a rough estimate, Goldman Sachs economists estimated Thursday that Hurricanes Harvey and Irma lowered job growth by 125,000 in the month. Maria struck the already storm-battered Puerto Rico and the Virgin Islands too late to be captured in the survey conducted by the Census Bureau, the Bureau of Labor Statistics explained.
Yellen and other central bank officials have already said that they expect the economic fallout from the hurricanes to be only temporary, and for growth to bounce back.
They will likely find reassurance in the findings of the household survey released Friday. Unlike the survey of businesses, which showed clear effects of the hurricanes, the survey of households that makes up the other part of the monthly jobs report contained several encouraging datapoints that suggest that the underlying recovery hasn't lost momentum.
In particular, wage growth picked up in September. Average hourly earnings rose 2.9 percent on the year, slightly above the rate that has persisted for years.
A measure of broad underemployment, including people forced into part-time work or only sporadically searching for positions, fell to 8.3 percent, the lowest since June of 2007.
And the workforce swelled by 575,000 people, bringing the labor force participation rate up to the highest it has been in three and a half years.
With Friday's data, it has been four full years since a significant change in the workforce participation rate. In light of the downward pressure from the ongoing retirement of the Baby Boom generation, a stable labor force participation rate is a sign that the jobs outlook is attractive to potential workers.
After the financial crisis, labor force participation dropped precipitously. Economists have struggled to disentangle how much of that decline was attributable to the weakness of the economy, versus the retirement of the Baby Boomers.
The major challenge for the Trump administration and Yellen right now is gauging just how many potential workers might enter the labor pool if job growth continues.
"We believe there are more workers willing to come into the workforce in the United States," White House National Economic Council director Gary Cohn said Friday in an interview with CNBC.
If there are many, the current situation could continue for a while: Resilient job creation, slow wage growth, and low inflation.
If, instead, the economy is at full employment, the Fed would expect inflation to soon accelerate as businesses are forced to compete for the few available workers by raising wages. In that case, they would have to raise rates faster than currently planned.
In September, the total employment rate for people in what is considered the prime working years, ages 25 to 54, hit the highest level of the recovery.
In some parts of the country, businesses are already citing problems finding willing workers. In those places, labor appears to be gaining leverage as business owners are forced to compete for workers.
In Nashville, local media reports that the hospitality industry, desperate for workers, has sought potential hires far and wide, including among people displaced by the flood in Houston and in homeless shelters. Tennessee's unemployment rate hit an all-time low of 3.3 percent in August.
In North Carolina, with unemployment near 4 percent, manufacturers report having difficulty finding workers who can pass a drug test.
The conventional view is that if the recovery continues, eventually more state and local job markets will heat up, and eventually employers will have to offer significantly higher wages to find and keep workers.
"I think right now there's about half an unemployed person in Colorado for every job listing, and so what that does is it encourages people to come in, but it also tells employers that if you want to be the one who gets that person than you have go to offer a higher wage," said White House Council of Economic Advisers chairman Kevin Hassett, speaking Thursday at an event in Washington. "If we can keep this recovery going for two or three years I think we can expect enormous wage growth at the bottom of the income distribution."
Frick agreed. "We're definitely on track for workers getting higher wages, which is really what I think is crucial at this point in time," he said.
An economy with higher wage growth and faster inflation would no longer be one merely catching up from the missed growth due to the recession. At that point, tax reform and other Trump priorities meant to increase productivity and innovation would be justified to keep economic growth and job creation up, Cohn suggested. "We believe that the tax cut is essential to continue the economic growth that we've started," he said.
Friday's report indicated that, outside of restaurants, most industries continued to expand employment through September.
Restaurants shed 105,000 jobs, after adding around 24,000 a month for the past year. But the health care and transportation sectors continued to add positions at a healthy clip.