Episode 36
Episode summary
Caleb and Liz discuss the most recent jobs report that shows a little softness, as well as the increasing cost of homeowners insurance and how that will ripple through the economy.
Shownotes
Employment Situation Summary [BLS]
Job Openings and Labor Turnover Summary [BLS]
US home insurers suffer worst loss this century [FT, sub required]
Billion-Dollar Weather and Climate Disasters [NOAA]
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Transcript
Liz Wilke (00:00:00) – Hi, I’m Liz Wilkie.
Caleb Newquist (00:00:02) – I’m Caleb Newquist.
Liz Wilke (00:00:04) – And this is the Guestonomics Podcast. Each episode, we bring you a little bit of economics knowledge so you can be more informed, use the information in your business or work, or have a pick-me-up for your post-Olympic blues.
Caleb Newquist (00:00:19) – Please remember to rate, review, and subscribe to the show, or share it with an economics curious friend. Anything you can do to spread the word about the podcast is greatly appreciated. Hello, Liz.
Liz Wilke (00:00:31) – Hello, Caleb.
Caleb Newquist (00:00:32) – Are you over summer?
Liz Wilke (00:00:34) – I am over summer. I live in DC. We’re about to enter our fifth stretch of heat wave with a mild drought. So I can officially say my hot girl brat, whatever summer, I cannot wait for it to be over and move into just the serene fall.
Caleb Newquist (00:00:53) – Yeah, our second major heat wave, at least to the best of my recollection, we’ve maybe had five heat waves. I don’t know. But we are at the end of one as we speak in this recording. And I’m really going to be glad that it’s over. But the problem is, in Denver, we could have another one a week after Labor Day. So it’s going to be a while.
Liz Wilke (00:01:22) – You could have one in February in Denver.
Caleb Newquist (00:01:25) – Yeah, yeah, yeah, yeah. Anyway, well, here’s the deal. There was a jobs report. And I think-
Liz Wilke (00:01:34) – There was a jobs report.
Caleb Newquist (00:01:35) – So you wanted, you informed me that you wanted to touch on this just a little bit. So should we get into the jobs report real quick, just for the record?
Liz Wilke (00:01:44) – I think we should, for the record, talk about the jobs report. The headline is there were 114,000 jobs created in the last jobs report. And that’s, I would say it’s like a dad bod report. Like it’s good. It’s highly functional, but it’s soft around the edges. And we also-
Caleb Newquist (00:02:08) – Endearing.
Liz Wilke (00:02:09) – Endearing, maybe.
Caleb Newquist (00:02:10) – Very endearing.
Liz Wilke (00:02:11) – We’re not in a bad position, but this is definitely, you know, we’re definitely seeing that sort of slow down, right? That we’ve been forecasting for a long time, right? That’s got to come soon. And I think this was the first major jobs report where it’s sort of like an unambiguous, like, yeah, we’re, the train’s slowing down a little bit. It’s not, it doesn’t have quite the pep in its step that it used to. Okay.
Caleb Newquist (00:02:33) – Now, one thing that we promised our listeners is that we would talk about revisions to jobs reports. And I think this is our first opportunity to do that. So Liz, Wilke, were there notable revisions to prior reports?
Liz Wilke (00:02:48) – There was one non-notable revision, which was a downward, there were two downward revisions. One of them was just 2000 jobs for May. And one of them was 27,000 jobs for June. So which brought the number for June actually down to an estimated 179,000. So it’s a, it’s a sizable, but not huge drop, but it definitely, you know, to have two downward revisions on a moderately weak jobs report, you know, relative to past job reports. I mean, sort of cements that sort of slowdown mentality that I think people are picking up from this jobs. Yeah.
Caleb Newquist (00:03:22) – And, and just as a reminder, if you, if you had didn’t listen to the revisions episode, number one, go back and listen to it. And in that episode, you will hear Liz talk about how even in spite of these revisions, they are highly accurate reports. Like these revisions are usually like, it’s, it’s more, I don’t want to say it’s, you know, angels tap dancing on the head of a pin, but like the numbers are good. And this is just economists and data people being very precise. Is that fair to say?
Liz Wilke (00:03:53) – Yeah. I mean, just, you don’t have to review the episode. I think people should, because I love all the episodes that we do, but there are about 161 million people working in the U S economy at any time. So to talk about an upward or downward shift of, you know, 27,000 is a very, very, very small percentage of the total.
Caleb Newquist (00:04:12) – Okay, so back to the July numbers. Was there anything else notable in the July employment situation that you would like to talk about?
Liz Wilke (00:04:24) – Yeah, I would just say, I think, again, adding on to what I’m going to call the malaise around this jobs report, because I think we’re used to getting pretty strong numbers. But the two things that I think really stood out for me is that the number of people who are unemployed, excuse me, the number of people who are employed part time for economic reasons, meaning there is not enough business for them, their employers aren’t going to put them on a full time shift, etc. rose about nearly 350,000, right.
Liz Wilke (00:04:54) – And then also the number of people who weren’t actively looking for a job, but who wanted a job, right, is also rose about 366,000. So those are both notable increases off their bases. The number of people employed part time for economic reasons, rose to 4.6 million. So that 346,000 is a big increase. And the number of people who were not in the labor force, but who wanted a job rose to 5.6 million. So non trivial increases there, which I think just sort of lends credence to the fact that the labor market is getting really soft.
Liz Wilke (00:05:27) – But what’s still notable here is that in the jobs opening and labor turnover survey, which was another labor market survey that was released on July 30, which is incidentally my birthday yay for me, economist, economist, birthday gifts, Caleb, it’s your birthday to July 30th is my birthday. I didn’t know that.
Caleb Newquist (00:05:47) – We didn’t know that. We didn’t know that.
Liz Wilke (00:05:49) – You clearly knew that about me because you’re not surprised at all by this fact.
Caleb Newquist (00:05:54) – Why did this is so bizarre? Huh?
Liz Wilke (00:05:58) – Caleb?
Caleb Newquist (00:05:58) – Yeah, it’s my birthday. Okay, but there was a JOLTS report on our birthday.
Liz Wilke (00:06:02) – There was a JOLTS report on our shared birthday, July 30th, that we said, you know, the hires and quits rate, right, is still very, very low. So employers aren’t laying people off. They’re still reluctant to do that. But employees aren’t quitting either. They’re seeing that softness and they’re thinking, I want to stay right put, which is which is a pretty good situation to be in if you have a job and not a great situation to be in if you need a job because there are just sort of fewer spaces at businesses that are open and available to you right now.
Caleb Newquist (00:06:36) – Are you a small business owner looking for a payroll solution that’s easy and stress-free? Look no further than Gusto. With Gusto, you can easily manage payroll benefits and HR in one place. Our intuitive software makes it easy to onboard new employees, calculate taxes, and run payroll with just a few clicks. Over 300,000 businesses trust Gusto with their payroll needs. Try Gusto today and get three months free when you run your first payroll. Visit gusto.com slash podcast to get three months free. That’s gusto.com slash podcast.
Caleb Newquist (00:07:10) – All right. Our main topic for this episode, I will, the way I’ll jump off of this is Liz Wilke sent me a Financial Times article, which I could not read because I don’t have a subscription and they’ve really locked down that website in the last three to four years. So there’s no good workaround. If there’s a good workaround that you know about for the FT, please let me know.
Caleb Newquist (00:07:36) – But in any case, I managed to get the article and I read the article and the title of this article is US Home Insurers Suffer Worst Loss This Century, Natural Disasters, Inflation and Population Growth Prove Toxic Mix for Industry. Okay, Liz. Why did you send this article to me? Why do you want to talk about insurance losses?
Liz Wilke (00:07:57) – I was sent this article to you, one, because I think that insurance is one of those background aspects of our lives, but really makes everything run, right?
Caleb Newquist (00:08:08) – Yeah.
Liz Wilke (00:08:08) – It’s kind of like the road. It’s like backbone financial infrastructure. And I think people don’t really think about it because that’s how good insurance should work is that you don’t think about it until you need it. But I think this one is important and I was thinking about it because my parents live in Houston, which was just subject to Hurricane Beryl and also because there are growing fires in California that continue to make the headlines.
Liz Wilke (00:08:32) – And so the extreme weather that keeps sort of seeming to be happening more and more regularly is really having a real world impact right now, especially on insurance markets that are going to have and that are having some significant economic impacts both for people who own property but also businesses that own property or rent property or have to insure themselves against any number of other weather related impacts.
Caleb Newquist (00:09:00) – Yeah, I’ll just make note that earlier in the summer, uh, as a Midwesterner, I, I would be remiss if I didn’t mention this, but earlier in the summer, tornadoes were kind of going gangbusters for a while there. And, um, and so, but yeah, it’s, it’s now it’s hurricane and fire season. So, um, very timely. So, uh, Liz, what, what’s kind of the, what’s the big takeaway? What’s the first big takeaway from this article that, uh, you, you want to talk about?
Liz Wilke (00:09:29) – I mean, I think the first big, the first big headline takeaway is that somebody has to pay, right? So I will, we’ll sort of talk a little bit about sort of the, the basics of insurance. If for those of you that don’t really think a lot about insurance, um, basically an insurer takes a premium that’s related to your risk of something bad happening to you and they agree to pay you out if that bad thing happens to you.
Liz Wilke (00:09:55) – And they take it not just from you, but a whole bunch of other people for similar types of events and they insure you, right? Which is great on this market that’s related to property insurance and business insurance and other types of insurance. Um, they also have what’s called a reinsurance market. So you buy an insurance policy from an insurer and then that insurer actually buys an insurance policy from an insurer, uh, who agrees to pay out to the insurer when they pay out to you.
Liz Wilke (00:10:27) – And so basically that’s a way to aggregate a whole bunch of risks because the idea is that, you know, if a tornado hits your house, it won’t hit the house of a person in another state or another city. And so nobody’s going to go broke all at once.
Liz Wilke (00:10:42) – But the thing is that it has to be sort of even on balance, right? These are businesses and they have to make money.
Liz Wilke (00:10:49) – And so the more that these risks happen right in real life, the more storms there are, the more fires there are, the more wind there is, the more floods there are, et cetera.
Liz Wilke (00:11:00) – They have to price the risk into the premium that everybody pays, right?
Liz Wilke (00:11:05) – So if you live in a high risk area for a flood or a fire or wind or a tornado or hail or what have you, that’s just raising the level of risk in the place that you live in, that something bad is going to happen to you. So premiums are going to go up, right?
Liz Wilke (00:11:19) – And homeowners…
Caleb Newquist (00:11:19) – So in other words, the likelihood that your house gets burned to the ground or gets flooded by hurricane or just torrential downpour is higher. And so that makes the insurance more expensive.
Liz Wilke (00:11:34) – Yes. So anyway, these insurance premiums are going up. And for homeowners, that’s a real problem because lots of people have a mortgage and you’re actually obligated by the person who holds your mortgage to have homeowners insurance.
Liz Wilke (00:11:45) – And so your costs of being a homeowner can just increase. And because there are lots of homeowners, that’s a very big policy issue, especially in places like Florida, California, et cetera.
Caleb Newquist (00:11:55) – Right. So for example, your parents live in Houston, but Texas in general has had a lot of… A lot of people have been moving to Texas in the last, what, 10 to 15 years, but also California. They’re the two biggest states in our country, but people are moving there. And so there’s flood and hurricane risk, especially in Southeast Texas. And there’s fire risk, basically all over California. And despite that, people continue to move those places. And the article didn’t mention this, but also Florida, lots of people have been moving to Florida as well.
Caleb Newquist (00:12:31) – And Florida has big, as we know, a big hurricane risk as well. So these three states are kind of… I don’t want to say well positioned, but they’re positioned in such a way that it creates a lot of risk. Is that fair to say?
Liz Wilke (00:12:47) – It creates a lot of risk. And so to give you a sense of the change in that risk, the National Oceanic and Atmospheric Administration, affectionately named NOAA, that keeps track of all the weather, actually has a database of what you call billion dollar weather events. Basically weather events that cause a billion or more dollars in damage. So they’ve been… It’s a very cool little data dashboard. You can Google NOAA billion dollar weather events. It’ll pop right up. We’ll put a link to it in the show notes also.
Caleb Newquist (00:13:18) – We will.
Liz Wilke (00:13:19) – But so they’ve been tracking this since 1983.
Liz Wilke (00:13:22) – The average number of billion dollar weather events adjusted for inflation since 1983 to 2023 is eight and a half.
Liz Wilke (00:13:30) – The average number of billion-dollar weather events over the last five years that they have been tracking is 20.4. It’s nearly, it’s two and a half to three times, right, the sort of long-run average. And the number this year, 2024, of billion-dollar weather events is 15 already.
Caleb Newquist (00:13:52) – Oh, man.
Liz Wilke (00:13:53) – And so the prime season.
Caleb Newquist (00:13:55) – We’re on pace for a record year, Liz.
Liz Wilke (00:13:56) – We are going to have a record year, it seems like. The prime season for billion-dollar weather events, according to NOAA, actually seems to be basically between July and September, because it’s hurricane season, it’s fire season, tornadoes, and storm season, and all that stuff.
Liz Wilke (00:14:11) – And then you have sort of another little jump in December for blizzards and things like that, like snowstorms, polar vortexes, and whatnot.
Liz Wilke (00:14:19) – But the big, big season for billion-dollar weather events has only just begun in the United States this year. So we are, in fact, on track.
Caleb Newquist (00:14:27) – How exciting. So if you’re an insurance company and you’re looking at this stuff, because I don’t know. I was talking about insurance with somebody recently. And it’s like, is there anyone better with numbers than insurance people? Maybe economists, but insurance people are up there. I don’t know. So if you’re an insurance person and you’re looking at this stuff, or you’re an insurance company filled with insurance people and you’re looking at this, you’ve got to be kind of nervous, right?
Liz Wilke (00:14:54) – It depends on which market you’re in. But yeah, I mean, the numbers have to. Somebody has to pay, which is the headline for this, which is that somebody has to pay.
Liz Wilke (00:15:02) – And businesses aren’t going to lose money over this in the long term, right? They might lose it in the short term, but they won’t lose it in the long term. So one of two things has to happen.
Liz Wilke (00:15:12) – Homeowners’ and business owners’ premiums have to go up in order to be insured against these kinds of damage, which is becoming more regular and more significant. Or the government has to insure people because it’s not profitable for businesses to do, which really just means that taxpayers insure people because the government is funded through taxpayer dollars. There are a number of efforts at work to try and make these markets more like to make the ledgers balanced, right?
Liz Wilke (00:15:42) – So that businesses will continue to insure people. But if it’s not profitable for business anymore, they’ll eventually leave, right? And then that’s sort of the worst outcome because then people don’t get insured or governments have to insure them.
Caleb Newquist (00:15:54) – And by leave, you mean insurance companies will pull out of specific markets because they’re too high risk.
Liz Wilke (00:16:00) – Yeah, they’ll stop offering. This actually happened in California in the early 2020s. So it was in the reinsurance market because these reinsurance companies were like, we absolutely cannot carry the risk given the way the market currently works in Florida. We can’t make it work out. And so we’re just going to stop offering policies, right?
Liz Wilke (00:16:19) – Because we’ll almost certainly lose money in the long run.
Liz Wilke (00:16:22) – So actually, Florida implemented a number of reforms in 2022 and 2023 to make the reinsurance and insurance market more favorable to insurance companies, which, by the way, usually makes them less favorable to homeowners, right?
Liz Wilke (00:16:38) – And that has actually done, I think, it seems like that has definitely done a reasonably good job of sort of halting the exit of insurers from this market so people can still get homeowners insurance.
Caleb Newquist (00:16:50) – OK, so we’ve been talking a lot about homeowners. What about small businesses? What about the stuff that we talk about each week? So what’s the impact there?
Liz Wilke (00:16:59) – Well, I think, one, where there are people, there are businesses, right?
Liz Wilke (00:17:03) – So all of this population movement to Miami, to Houston, to California, et cetera, there are businesses that serve these people, right?
Liz Wilke (00:17:12) – And these businesses, especially if you are brick and mortar, right, you are facing sort of similar levels of risk, right? So there are lots of business insurances you can buy. And one of them is if you rent a space, you are paying for the property owner’s insurance premium because they have to cover their costs. And if you own your space or you have mortgaged your space, you are paying the property insurance on that. So businesses can expect, right, their own direct insurance premiums to go up.
Liz Wilke (00:17:41) – But there is also other types of insurance, like business interruption insurance, right? So if you have to shut down in order to get a repair, that can happen. But as that risk goes up, right, that there’s sort of more extensive damage, you have to shut down for longer. It happens more often, right? That insurance is going to go up. And so there is definitely this sort of increasing cost on the horizon for businesses, too. And also, there’s that direct risk.
Liz Wilke (00:18:08) – If you have a business in an area where you have a whole bunch of homeowners who are underinsured or not insured because insurance has gotten too expensive and a hurricane blows through or a fire comes through.
Liz Wilke (00:18:22) – those people are less likely to come back and rebuild, right? And so there is sort of like, this is an outside risk. But the neighborhood that your business used to depend on sort of becomes endangered the more people go underinsured or uninsured. Because then the house is too expensive to rebuild, and then they move, right? This actually happened during Hurricane Katrina. A lot of people were underinsured. They were moved to other parts of Texas, Louisiana, Alabama, et cetera.
Liz Wilke (00:18:52) – And many of them just sort of did not come back to the neighborhoods that they had built in because their houses weren’t worth it, and they didn’t have insurance for it. So these things can happen. They’re not that common. But with more severe weather, it can become more common. And that’s sort of like a long-term risk to a lot of businesses in these densely populated areas, especially.
Caleb Newquist (00:19:13) – OK, so Liz, do you have any advice for these businesses who may, I mean, really, you’re talking about, because we’re talking about all kinds of different natural disasters, floods, hurricanes, fires.
Liz Wilke (00:19:27) – Tornadoes.
Caleb Newquist (00:19:28) – Tornadoes. Like, none of us are safe. So that’s what I’m trying to say. I mean, I don’t know. They probably, the Northeast, the Northeast, what’s the Northeast get? The Northeast kind of gets hurricanes sometimes. They kind of get some blizzards sometimes. OK, you know, Northeast people, just relax. We’re not trying to exclude you. Anyway, my point, my question is, do you have any words of wisdom or just real easy pieces of advice for businesses who are thinking about this and want to be proactive?
Liz Wilke (00:20:04) – So insurance is based off of how likely is the damage to happen to you. Not how likely is the thing to happen to you, right? So if a hurricane comes through, you could not have any damage. In fact, my parents’ house has survived several hurricanes without any damage, which is great for their insurance premium. But so the side of the equation that business owners and people can affect is not, will it happen to me, but will I have any damage? So you can’t control whether or not a tornado comes through your neighborhood.
Liz Wilke (00:20:43) – But you can control whether or not your windows and roof, et cetera, are sort of well-rated to withstand those kinds of pressures. And so doing that not only protects you against a really big claim that you have to make against a deductible that might be much higher than you have to pay, but it’ll also get you a discount on the insurance premium that you have to pay in general for just living in a high-risk area. So there is a business savings. It’s business deductible as an expense.
Liz Wilke (00:21:13) – And it can sort of save you from that sort of catastrophic event where you didn’t have those reinforcements and you had to pay a $20,000 deductible, which is a very high deductible but not actually unheard of in the insurance market.
Caleb Newquist (00:21:28) – OK.
Liz Wilke (00:21:29) – So I think to wrap up, if you are going to see “Twisters” this summer, just remember that the villain is a property redeveloper who goes into tornado-affected communities and buys the under-insured family businesses of people whose lives have been upended by a tornado.
Liz Wilke (00:21:51) – And this is clearly fiction, but actually the sort of under-insured. The insurance gap is a plot mechanism here in a summer blockbuster. It is a real thing. And it’s something that I think is going to continue to affect businesses more and more often.
Caleb Newquist (00:22:11) – Didn’t see that coming, did you folks? That’s it for this episode. We hope you learned something new or useful for yourself or your business. Insurance is good. Insurance is key. That’s from “The Incredibles.” Please let us know what you think of the podcast by leaving a review or share it with a friend or colleague who might enjoy it. I’m Caleb Newquist.
Liz Wilke (00:22:33) – And I’m Liz Wilkie. Thanks for listening.
Caleb Newquist (00:22:36) – The Gustonomics Podcast is made possible by Gusto, the people platform for over 300,000 businesses across America. If you’ve started a business and are ready to hire your first employee or just looking for an easier way to run payroll, visit gusto.com slash podcast to learn more. That’s gusto.com slash podcast.
