Hurricanes not only lead to a sharp drop in real-world air pressure, but also affect the barometers used to interpret the economy.

Hurricanes 'Heleni' and 'Milton' may cause serious distortions to economic indicators at particularly delicate moments. The October employment report will be released on Friday, just four days before the U.S. election. This report will be affected by the hurricane, potentially making it especially distorted as a political bargaining chip in the final stages of the presidential election.

The Federal Reserve's next interest rate decision will be made two days after the election day. The impact of the hurricane on the data will make it more difficult for the Federal Reserve to decide how much to cut interest rates or whether to cut in order to maintain economic stability and ease inflation.

"Hurricane Helene" is the most deadly hurricane to hit the mainland USA since "Lina", and many affected communities are still recovering.$Carter's (CRI.US)$after the two weeks, "Milton" arrived.

Storms temporarily lead to unemployment, forcing shops, factories, and construction sites to close. Although the economy eventually bounced back, these effects will make it harder for people to understand the current situation.

The September employment report has changed the landscape of the labor market, from rising unemployment rates and slowing job growth to stable unemployment rates and strong job growth, with 0.254 million new jobs added in September. However, the October reading will not only be affected by the storm, but also by$Boeing (BA.US)$employee strikes. Economists expect the report to show only 0.123 million new jobs added.

For employment growth data, the U.S. Department of Labor surveys how many people U.S. employers hired during the pay period up to the 12th. Those working during that period - whether weekly, bi-weekly, or monthly - are considered part of the employment population. 'Heleni' made landfall in Florida on September 26 and did not affect the September reading. The Boeing strike began on September 13. Additionally, a three-day strike by port workers ending on October 3 may not have had any impact.

But October is a different story. In early October, the number of initial claims for unemployment benefits in Florida, Georgia, South Carolina, North Carolina, and Tennessee all rose due to Hurricane "Heleni", and the number of people applying for unemployment benefits in Florida also increased after Hurricane "Milton".

In a mid-October speech, Federal Reserve Governor Waller said he expected hurricanes and Boeing employee strikes to reduce job growth by more than 0.1 million jobs. According to Goldman Sachs' economists, based on initial claims for unemployment benefits, loss estimates, and past hurricane situations, hurricanes alone could reduce job growth by 0.04 million to 0.05 million jobs. JPMorgan's estimate is around 0.05 million people, while Barclays' estimate ranges from 0.05 million to 0.06 million people.

Wage growth could also be distorted upwards. This is because when a storm hits, hourly workers who usually earn more than salaried workers are more likely to lose wages, leading to artificially higher average wages.

Unlike employment growth based on employer surveys, the unemployment rate is based on individual household surveys, so hurricanes may not have a significant impact on the unemployment rate. Respondents who claim to have jobs but did not work due to severe weather are still counted as employed. The unemployment rate may still be affected to some extent, but it is often moderate. Striking workers are also counted as employed. Economists expect the Friday report to show the unemployment rate stable at 4.1% for October, the same as in September.

The Department of Labor typically considers the impact of severe storms in its monthly employment reports. This subtle difference may be overlooked this Friday. Trump's team may emphasize any weaknesses in job growth, while Harris's team will point out the unemployment rate.

The Fed cut interest rates by 50 basis points in September to a range of 4.75% to 5%, its first rate cut since 2020. Economists expect the Fed to cut rates by 25 basis points on November 7. Another 50-point rate cut may require a very weak jobs report that cannot be explained by the impact of hurricanes.

The employment report is a key data point that the Federal Reserve pays attention to, and officials usually provide some background information to explain how they interpret the data. However, Powell pointed out that starting from October 25th (last Saturday), Federal Reserve officials will enter a 'quiet period,' restricting them from commenting on the economy before the meeting ends. Powell said, 'You won't find any of us trying to spin this low number positively, though I wish others would.'

The next few weeks may also be filled with challenges. Due to hurricanes causing the closure of many stores and restaurants, the October retail sales report released by the U.S. Department of Commerce may be negatively impacted. Industrial production, construction, and housing sales activities may also decline.

Meanwhile, due to material shortages caused by the storm, inflation may tick slightly higher. Apart from some auto plants ceasing production, the storm also destroyed a large number of vehicles, with Moody's estimating auto insurance losses to be between 3 to 5 billion U.S. dollars. The demand for replacing cars may prevent the decline in new and used car prices over the past year. Auto insurance rates in states hit by hurricanes will also increase.

Another major economic report will be released this Wednesday. Economists expect a strong 3.2% annualized growth rate for the third quarter Gross Domestic Product (GDP) after adjusting for inflation. Therefore, despite the likelihood of economic weakening under the distortion caused by hurricanes, it is more likely that the economy will rebound.

In fact, from the GDP perspective, the economy may appear somewhat better than it did before the hurricanes hit. People will return to work, and the lost sales volume will ultimately only be deferred rather than canceled. At the same time, post-disaster reconstruction efforts (such as rebuilding roads, docks, or homes destroyed after the disaster) will boost GDP and may offset and surpass the permanent losses in economic activity. This indicates that economic indicators do not always align with people's intuition.

Editor/Rocky