In a few days, Hurricane Michael went from nothing to a storm with 155 mile per hour winds. Unlike Hurricane Florence, the winds increased as it went ashore.

The good news is this is a quick moving, small storm. The hurricane force winds only extended for 30 miles. The flooding from rain won’t be as bad as Hurricane Florence and Hurricane Harvey because it is quick moving.

However, the storm surge is hugely problematic. The effects to the economy probably won’t be huge because it missed Panama City and the beach tourist season is almost over.

The storm is mainly impacting rural areas. This storm isn’t doing its worst damage in cities, but it will destroy cotton and peanut crops. Duke Energy stated it expects 200,000 power outages.

The October labor market will be moderately affected by this storm. As you can see from the graphic below, it will also impact Alabama, Georgia, and the Carolinas.

KIE insurance sector ETF was down 2.72% on Wednesday, but that’s actually better than the overall market.

Travelers fell 2.61% and AIG fell 2.66%. Home Depot stock was down 1.05% and Lowe’s was down 2.65%. The retail sector was down 2.46% on Wednesday, meaning only Home Depot outperformed. It’s difficult to measure performance on a volatile day.

With Hurricane Florence, the market had already priced the impacts in days before the storm. As it weakened, some estimates for destruction actually fell.

This storm was different because it formed and strengthened very quickly. Keep in mind, hurricane Michael is hitting in early Q4. This means the negative impact from damage and the positive impact from rebuilding should cancel each other out.

To be clear, damage isn’t good for the economy. It’s not a stimulus as money doesn’t appear out of nowhere to rebuild areas. Firms and individuals need to sacrifice savings or borrow money to get back to normal.

That spending would have occurred over time as it was needed. It looks like a stimulus because a great deal of spending occurs at once. However, that’s borrowing from future growth.

Hurricane Michael - Small Businesses Are Still Optimistic

The September NFIB small business index fell slightly from 108.8 to 107.9. That missed estimates by 0.1. The report is still very strong. Not every report can make new record highs.

This report was the 3rd best in the 45 year history of the survey. The table below shows the changes to the segments which make up the overall index.

As you can see, the weakest ones were plans to increase inventories, plans to make capital outlays, and plans to increase employment.

Inventories depend on how much product firms have at the start of the period and how much demand they expect. Since the expectation for real sales increased 3% to 29%, I wouldn’t worry about the inventory reading falling 7% to 3%.

This high estimate for retail sales is consistent with the latest reading from the Redbook weekly retail sales report which showed year over year sales growth in the first week of October accelerated from 5.7% to 6.5%.

Even though plans to increase inventory fell, the net percentage of firms saying inventory was too low rose 2% to -1%.

Actual investment spending was up in September as 60% of firms stated they invested new capital. This is up from 56% in August. 41% of firms invested in new equipment, and 26% bought vehicles. 16% improved or expanded facilities.

Those stats were up 4%, up 2%, and down 2% from August. Only 3% of owners stated their borrowing needs weren’t satisfied. That is a record low in the 45 year history of this survey.

With rates rising, liquidity might not stay at this level for long. Almost no small businesses complaining about access to capital is something you see near the top of the business cycle, not near the bottom.

Hurricane Michael - Small Businesses Can’t Find Workers

The labor market is getting extremely tight according to this survey. 38% of owners stated they couldn’t fill job openings. That’s what happens when the JOLTS report shows more job openings than people looking for a job. 61% of businesses stated they were hiring or trying to hire new workers.

87% of businesses stated there were few or no qualified workers. It’s not easy for a small business with only a few workers to train unskilled applicants.

This explains the chart below which shows the most important problem small businesses have is labor quality. The difference between labor quality and the other problems is at a record high.

Even though it seems like a good problem to have, if firms can’t find workers, they can’t expand. Not being able to take advantage of opportunities is almost the same thing as not having them.

A record 37% of firms stated they raised overall compensation. That’s up 5% from August and 2% above the record set in May. It’s amazing to see that with record pay growth, firms still can’t find workers.

This pay growth is in tune with the 3.35% average weekly wage growth in September which was the 3rd highest rate in this expansion. It’s not in tune with nominal average hourly earnings growth for private non-supervisory workers.

Current growth is 2.7% which is below the peak in 2006 of 4.2% and 4.3% in 1998.

If inflation catalyzing Fed rate hikes doesn’t cause a slowdown, the inability for small businesses to expand can be a catalyst. Speaking of inflation, the net percentage of businesses with rising average selling prices fell 2% to a seasonally adjusted 15%.

Hurricane Michael - Conclusion

Hurricane Michael is doing terrible damage to the Florida panhandle and other parts of the southeast. It’s like a massive tornado which does catastrophic damage to a relatively small area compared to other hurricanes.

I’ll be reviewing the jobless claims reports in a couple weeks to determine the effect on the economy. The small business index shows extreme optimism. The only problem is firms can’t find workers to help them expand.

Even though the net percentage of small businesses raising compensation hit a record high, inflation wasn’t a problem. That’s just like the national numbers.