Hurricane-ravaged U.S. cities hit by rising cleanup costs

FILE PHOTO: Flood-damaged contents from people's homes line the street following the aftermath of tropical storm Harvey in Wharton, Texas, U.S., September 6, 2017. REUTERS/Mike Blake/File Photo

By Rod Nickel

HOUSTON (Reuters) – Communities in Texas and Florida, each swamped by a hurricane within two weeks of one another, are rewriting debris removal contracts and paying millions of dollars more to lure trucks, as subcontractors say costs have jumped.

The willingness of communities to renegotiate such contracts in the aftermath of hurricanes Harvey in Texas and Irma in Florida shows the limits of pre-planning for events as unpredictable as back-to-back hurricanes.

Higher fees, however, may not be covered by the Federal Emergency Management Agency (FEMA), even after these huge storms brought intense public pressure to clear millions of cubic yards of rubbish from streets and damaged furnishings from flooded homes and businesses.

In Texas, Houston is considering a 50-percent increase in pay for haulers and Harris County, which encompasses the city, is also offering incentives to recruit more trucks. In Florida, the City of Miami hiked its rates for debris removal by as much as double to DRC Emergency Services, CrowderGulf LLC and Ceres Environmental Services Inc, city documents show.

Local officials are rewriting contracts to attract subcontractors from other regions and businesses such as logging and dirt-hauling, citing a shortage of trucks to cart debris away because fleets are stretched across two devastated states. The removal business relies on networks of subcontracted trucks when disasters strike.

DRC’s subcontracting costs have jumped by at least 30 percent, said John Sullivan, president of the Galveston, Texas-based disaster specialist, shrinking margins to “almost nothing” as the company has to pay more to attract truck owners.

“It’s not a renegotiation, it’s a necessity,” Sullivan said. “The increase that we’re getting is all going to (pay) costs.”

Subcontractors often include out-of-state operators lured by the opportunity for a financial windfall.

Johnny Helaire, owner of Crossroads Trucking Service, said the Houston cleanup offers steady work at a time when his dirt and gravel business is slumping.

Each of Helaire’s 12 trucks earns on average $800 gross per day more in Houston than they would loading dirt, not counting hotel and food expenses, he said, while directing workers through a headset like a football coach.

Across the Texas Gulf Coast, Harvey left as much as 200 million cubic yards (153 million cubic meters) of trash that must be removed, the state has estimated.

Much of that still lines local streets. Houston’s director of solid waste management, Harry Hayes estimated that just 5 percent of the city’s debris had been cleared by Sept. 20.

“Houston ended up being ground zero. A thousand-year rain event is going to generate a wider field of debris, considering our population,” than in smaller Texan cities, Hayes said.

The city wants to increase its debris-hauling rate to $11.84 per cubic yard from $7.86, an amount that would help it get 200 more trucks from contractors, he said. Houston now has about 330 in service.

DRC expects to handle 2.5 million cubic yards in the Houston area alone. On that basis, Houston’s pay increase would amount to $10 million more.

Officials delayed a vote on the rate increase on Wednesday as they sought more information.

Harris County, one of the most populous U.S. counties, is offering incentives worth an additional $3 to $5 per cubic yard because small trucks cannot profit at the rate for trucks with bigger capacity, said county engineer John Blount.

Paying more for trucks is critical to recruiting more away from their normal businesses, said Glen Nelson, owner of DNR Group, which specializes in disaster clean-up. Even so, he said he is earning half of what he did for Hurricane Katrina cleanup in 2005.

RAISING FEES “SMELLS”

Bruce Hotze, treasurer of Houston watchdog group Let the People Vote, said offering to increase payments to disposal companies “smells.”

“If they needed prices to go up it should have happened before the hurricane,” he said.

Texan cities Rockport and Corpus Christi, both near where Harvey made first landfall, said they will not pay more.

“You hold those contractors accountable to provide what they said they would provide for you,” said Mike Donoho, Rockport’s public works director.

Alabama-based CrowderGulf has not asked communities for higher pay because of the risk that those fees will not be reimbursed by FEMA, said Chief Operating Officer Ashley Ramsay-Naile. Some of its contracts state that CrowderGulf will not get paid for amounts that FEMA does not cover, she said.

FEMA reimburses 90 percent of debris expenses, and covers pay above contracted rates only if municipalities show it is justified, said FEMA spokeswoman Barb Sturner.

(Reporting by Rod Nickel in Houston; editing by Gary McWilliams and Marcy Nicholson)

Unbudgeted: How the opioid crisis is blowing a hole in small-town America’s finances

Unbudgeted: How the opioid crisis is blowing a hole in small-town America's finances

By Paula Seligson and Tim Reid

INDIANA, Pa./CHILLICOTHE, Ohio (Reuters) – As deaths mount in America’s opioid crisis, communities on the front lines face a hidden toll: the financial cost.

Ross County, a largely rural region of 77,000 people an hour south of Columbus, Ohio, is wrestling with an explosion in opioid-related deaths – 44 last year compared to 19 in 2009. The drug addiction epidemic is shattering not just lives but also stressing the county budget.

About 75 percent of the 200 children placed into state care in the county have parents with opioid addictions, up from about 40 percent five years ago, local officials say. Their care is more expensive because they need specialist counseling, longer stays and therapy.

That has caused a near doubling in the county’s child services budget to almost $2.4 million from $1.3 million, said Doug Corcoran, a county commissioner.

For a county with a general fund of just $23 million, that is a big financial burden, Corcoran said. He and his colleagues are now exploring what they might cut to pay for the growing costs of the epidemic, such as youth programs and economic development schemes.

“There’s very little discretionary spending in our budget to cut. It’s really tough,” Corcoran said.

Cities, towns and counties across the United States are struggling to deal with the financial costs of a drug addiction epidemic that killed 33,000 people in 2015 alone, data and interviews with more than two dozen local officials and county budget professionals shows. (For graphics on the opioid crisis click here: http://tmsnrt.rs/2hO4YC7)

The interviews and data provide one of the first glimpses into the financial impact on local governments but it is far from complete because there is no central database collating information from counties and states. So, the true scale is still mostly hidden from view.

Opioids, primarily prescription painkillers, heroin and fentanyl – a drug 50 to 100 times more powerful than morphine – are fueling the drug overdoses.

President Donald Trump last month called the epidemic a “national emergency” but has not yet made an official national emergency declaration. Such a move would give states access to federal funds to fight it.

BUILDING A PICTURE

Counties grappling with rising overdoses face higher costs in emergency call volumes, medical examiner and coroner bills, and overcrowded jails and courtrooms, said Matt Chase, executive director of the National Association of Counties, which represents 3,069 county and local governments.

At his group’s July annual meeting, a presentation where county officials shared tips on tackling the opioid crisis, and the budget problems the crisis is triggering, played to a packed room, Chase said.

The organization is in the early stage of collecting information to build a more complete picture of the financial impact of the crisis on county budgets, Chase said.

Indiana County, Pennsylvania, a mountainous, predominantly rural region, provides a snapshot of how the crisis is stressing local services and budgets.

Its county seat, the borough of Indiana, is home to a modern college campus and a main street lined by restaurants and American flags. Yet beneath its outward tranquility, the opioid epidemic is everywhere, said David Rostis, an undercover detective and head of the county’s drug task force.

On a recent ride-along in Rostis’ car, he points to a building where a doctor used to sell opioid prescriptions for sex; a large, affluent home where a teenager died of an overdose; a trail where a drug-related killing recently occurred; and the local gas station where a woman recently overdosed and died in her car while people passed by.

In 2016, the county’s drug overdose death rate was 50.6 deaths per 100,000, compared to the state average of 36.5.

Autopsy and toxicology costs there have nearly doubled in six years, from about $89,000 in 2010 to $165,000 in 2016, county data shows.

Court costs are soaring, mainly because of the expense of prosecuting opioid-related crimes and providing accused with a public defender, local officials say.

The county is using contingency funds to pay for the added coroner costs, said Mike Baker, the county’s top government official. Last year, the county drew $63,000 from those funds, up from $19,000 in 2014, he said. In 2014, the county saw 10 drug-related deaths. In 2016, the number had grown to 53.

In Mercer County, West Virginia, 300 miles (483 km) to the south of Indiana County, opioid-related jail costs are carving into the small annual budget of $12 million for the community of 62,000 people.

The county’s jail expenses are on course to increase by $100,000 this year, compared to 2015. The county pays $48.50 per inmate per day to the jail, and this year the jail is on course to have over 2,000 more “inmate days” compared to 2015, according to county data.

“At least 90 percent of those extra jail costs are opioid-related,” said Greg Puckett, a county commissioner who sits on a national county opioid task force. “We spend more in one month on our jail bill than we spend per month on economic development, our health department and our emergency services combined.”

West Virginia has been on the front line of the opioid crisis. In 2015, the state led the nation in drug overdose death rates for the third consecutive year. Preliminary numbers for 2016 recorded 883 drug overdose deaths, with 755 involving at least one opioid, up from 629 total deaths in 2014.

AUTOPSIES INC.

Few know the opioid crisis like the father-son duo Sidney and Curtis Goldblatt. The pair run two companies, ForensicDx for autopsies and MolecularDx for drug testing, out of Windber, Pennsylvania. Together they conduct autopsies for 10 Pennsylvania counties, including Indiana, charging between $2,000 and $3,000 per body.

In 2014, overdoses represented about 40 percent of the deaths they handled, the Goldblatts said. Last year, that shot up to 62 percent. Goldblatt senior has been performing autopsies for 50 years and says he has never seen anything on the scale of the current epidemic. When he started, a drug overdose was rare.

The pair opened ForensicDx in 2014 with a staff of three, serving only three counties. That’s grown to seven staff and 10 counties, mainly to meet demand from drug-related deaths, the Goldblatts said.

Indiana County’s ambulance service is also under financial stress because of the opioid crisis. The county’s primary ambulance provider, Citizens’ Ambulance Service, has lost more than $100,000 since 2016 alone on opioid calls, said Randy Thomas, director of operations.

The non-profit is reimbursed only if an opioid overdose patient is transported to the hospital. It doesn’t get paid for successfully treating people who have overdosed but then refuse to go to the hospital, Thomas said.

People brought back from the brink of death after a dose of the life-saving drug naloxone, also known as Narcan, often awake angry and combative and refuse hospitalization, Thomas said.

As costs related to the opioid epidemic increase, Indiana County commissioner Baker isn’t sure what will happen next. Unless the state or federal government intervene, the county will have to either cut services or increase taxes, Baker said.

“This has introduced an entirely different metric, an entirely different level of unpredictability in budgeting,” he said.

For all the budget problems Baker faces because of the crisis, the human toll is what distresses him most. Last fall, Baker’s nephew died of a fentanyl overdose. He was 23. Talking about his nephew’s death, Baker pauses to collect his thoughts.

“It is a most painful and difficult experience and I wouldn’t wish it on anyone in the world,” he said.

(Editing by Jason Szep and Ross Colvin)

U.S. housing starts fall for second straight month; outlook murky

U.S. housing starts fall for second straight month; outlook murky

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. homebuilding fell for a second straight month in August as a rebound in the construction of single-family houses was offset by persistent weakness in the volatile multifamily home segment.

The report from the Commerce Department on Tuesday also showed building permits racing to a seven-month high in August. However, permits for single-family homebuilding, which accounts for the largest share of the housing market, dropped.

The mixed report suggested housing could remain a drag on economic growth in the third quarter. Homebuilding has been treading water for much of this year amid shortages of land and skilled labor as well as rising costs of building materials.

Housing starts slipped 0.8 percent to a seasonally adjusted annual rate of 1.18 million units, the Commerce Department said.

Building permits surged 5.7 percent to a rate of 1.30 million units in August, the highest level since January.

The data suggested limited impact on permits from Hurricane Harvey, which lashed Texas in late August and caused unprecedented flooding in Houston. The Commerce Department said the response rate from areas affected by the storm “was not significantly lower.”

But homebuilding could slump further in September in the aftermath of Harvey and Hurricane Irma, which struck Florida. According to Census Bureau data, the areas in Texas and Florida that were devastated by the storms accounted for about 13 percent of permits issued in the nation last year.

Though activity could pick up as the hurricane-ravaged communities rebuild, the dearth of labor could curb the pace of increase in homebuilding. A survey Monday showed confidence among homebuilders fell in September amid concerns that the hurricanes could worsen the labor shortages and make building materials more expensive.

Economists had forecast housing starts rising to a 1.18 million-unit pace last month. Investment in homebuilding contracted in the second quarter at its steepest pace in nearly seven years. As a result, housing subtracted 0.26 percentage point from second-quarter gross domestic product.

Homebuilding rose 1.4 percent in August on a year-on-year basis. Despite the recent weakness, housing continues to be supported by a labor market that is near full employment. In addition, mortgage rates remain close to historic lows.

Single-family homebuilding jumped 1.6 percent to a rate of851,000 units in August. Single-family permits, however, fell 1.5 percent to a 800,000-unit pace. With permits lagging starts, single-family homebuilding could decline in the months ahead. Groundbreaking on single-family housing projects has slowed since vaulting to near a 9-1/2-year high in February.

MIXED DATA

Last month, single-family starts rose in the South and West, but fell in the Midwest and Northeast. Starts for the volatile multi-family housing segment tumbled 6.5 percent to a rate of 329,000 units. Multi-family permits vaulted 19.6 percent to a 500,000-unit pace in August.

The mixed data is unlikely to change expectations that the Federal Reserve will announce on Wednesday a plan to start unwinding its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities. Fed officials were scheduled to start a two-day meeting later on Tuesday.

The dollar was trading lower against basket of currencies, while prices for U.S. Treasuries rose. U.S. stock futures were slightly higher.

In a separate report on Tuesday, the Labor Department said import prices jumped 0.6 percent in August, the biggest gain since January, after dipping 0.1 percent in July.

In the 12 months through August, import prices surged 2.1 percent after rising 1.2 percent in July.

Last month, prices for imported petroleum raced 4.8 percent after slipping 0.4 percent in July. Import prices excluding petroleum rose 0.3 percent after dipping 0.1 percent the prior month. Import prices excluding petroleum increased 1.0 percent in the 12 months through August.

Import prices outside petroleum are rising as the dollar’s rally fades. The dollar has weakened 8.3 percent against the currencies of the United States’ main trading partners this year.

The report also showed export prices rose 0.6 percent in August after gaining 0.5 percent in July. They increased 2.3 percent year-on-year after rising 0.9 percent in August.

A third report from the Commerce Department showed the current account deficit, which measures the flow of goods, services and investments into and out of the country, increased to $123.1 billion in the second quarter from $113.5 billion in the first quarter.

That was the highest level since the fourth quarter of 2008.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

U.S. job openings at record high; qualified workers scarce

FILE PHOTO: Men walk in the hall outside a Hire Our Heroes job fair targeting unemployed military veterans and sponsored by the Cable Show, a cable television industry trade show in Washington, June 11, 2013. REUTERS/Jonathan Ernst/File Photo

WASHINGTON (Reuters) – U.S. job openings rose to a record high in July, suggesting a slowdown in job growth in August was an aberration and that the labor market was strong before the recent disruptive hurricanes.

The monthly Job Openings and Labor Turnover Survey, or JOLTS, released by the Labor Department on Tuesday showed the labor market continued to tighten amid a scarcity of workers.

The strong labor market fundamentals could encourage the Federal Reserve to continue tightening monetary policy this year despite inflation persistently running below the U.S. central bank’s 2 percent target.

“Employers need skilled labor and experienced workers are in short supply, which continues to suggest the economy has returned to a relatively normal labor market that does not need exceptional support from the Fed,” said John Ryding, chief economist at RDQ Economics in New York.

Job openings, a measure of labor demand, increased by 54,000 to a seasonally adjusted 6.2 million. That was the highest level since the data series started in December 2000. Job openings have now been above 6 million for two straight months.

Hiring increased 69,000 to 5.5 million in July, lifting the hiring rate to a near 1-1/2-year high of 3.8 percent from 3.7 percent in June.

Labor market tightness was also underscored by another report from the National Federation of Independent Business.

The NFIB survey showed a record share of small businesses in August ranked difficulties finding qualified workers as “their top business problem.” The rise in job vacancies in July bolsters views that August’ s moderation in job gains was largely because of a seasonal quirk.

SOLID SHAPE

Nonfarm payrolls increased by 156,000 jobs last month, with the private services sector hiring the smallest number of workers in five months. Job growth in September could, however, be held back by hurricanes Harvey and Irma, which struck Texas and Florida, respectively.

The two states account for about 14 percent of U.S. employment. Temporary unemployment as a result of flooding from Harvey has already caused a surge in first-time applications for jobless benefits.

“The JOLTS data signal that the labor market was in solid shape in July and support our view that we should not be very concerned about the modest disappointment in the August payroll report,” said Daniel Silver, an economist at JPMorgan in New York.

JOLTS is one of the job market metrics on Fed Chair Janet Yellen’s dashboard. Economists expect the U.S. central bank will announce a plan to start reducing its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities at its Sept. 19-20 policy meeting.

Benign inflation amid sluggish wage growth, however, suggests the Fed will delay raising interest rates again until December. It has increased borrowing costs twice this year.

Job openings in transportation, warehousing and utilities increased 70,000 in July and educational services had an additional 26,000 vacancies. There were 20,000 more job openings in construction.

Manufacturing, however, saw a 29,000 drop in vacancies in July. Health care and social assistance job openings decreased 72,000 and federal government vacancies declined 21,000.

About 3.2 million Americans voluntarily quit their jobs in July, up from 3.1 million in June. The quits rate, which the Fed looks at as a measure of job market confidence, rose to 2.2 percent from 2.1 percent in June.

“One of the problems facing firms is that workers are still pretty much locked into their current positions,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “With companies unwilling to bid for workers from other firms, there is little reason to leave and that is limiting the availability of qualified workers.”

Layoffs fell 23,000 to 1.78 million in July.

(Reporting by Lucia Mutikani; Editing by Phil Berlowitz)

Dollar hits low note while euro shines; storms stoke worry in U.S.

Dollar hits low note while euro shines; storms stoke worry in U.S.

By Hilary Russ

NEW YORK (Reuters) – Reduced expectations for another U.S. Federal Reserve interest rate hike this year helped drive down the dollar to its lowest in more than 2-1/2 years on Friday and kept gold near a one-year high.

The euro hit multi-year peaks in the wake of a European Central Bank meeting, while U.S. crude oil prices tanked more than 3 percent as powerful Hurricane Irma roared toward Florida.

Stubbornly weak inflation continues to surprise Fed policymakers. In a speech on Thursday, New York Fed President William Dudley did not repeat an assertion from three weeks ago that he expects to raise rates once more this year.

Also dampening the dollar and lowering the chances of another rate hike was an agreement in Congress to push U.S. debt ceiling talks three months down the road to December, coinciding with the Fed’s policy meeting.

Against a basket of other major currencies, the dollar index <.DXY> was down 0.38 percent after touching a low of 91.011, its weakest since January 2015.

The safe-haven Japanese yen <JPY=> also strengthened 0.61 percent versus the greenback at 107.80 per dollar, and the euro <EUR=> rose 0.12 percent to $1.2036.

The euro’s rally built on ECB President Mario Draghi’s suggestion that it may begin tapering its massive stimulus program this fall.

Draghi referred several times Thursday to the euro’s strength and said it was the main reason for a cut in the bank’s 2018-19 inflation forecasts. He also indicated any winding down of its massive stimulus program was likely to be slow.

Those comments did little to deter euro bulls, however, and a Reuters report that central bank officials were in broad agreement that their next step would be to reduce their bond purchases also supported the currency.

The ECB “left the mystery out there” with regard to tapering, said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York. “It creates a feeding frenzy, and the momentum that was there (in the euro) gets accelerated.”

Oil prices fell sharply on worries that energy demand would be hit by Irma, one of the most powerful storms to near the United States in a century, as it barreled toward Florida and the U.S. Southeast.

Irma is the second major storm to threaten the United States in two weeks after Hurricane Harvey shut a quarter of U.S. refining capacity and 8 percent of U.S. oil production.

“Hurricanes can have a lasting effect on refinery and industry demand,” said Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt.

U.S. crude <CLcv1> fell 3.12 percent to $47.56 per barrel and Brent <LCOcv1> was last at $53.76, down 1.34 percent.

Economists have said Harvey could weigh on U.S. economic growth in the third quarter.

Spot gold <XAU=> was down 0.2 percent to $1,346.52 an ounceafter hitting $1,357.54, its highest since August 2016. It was up 1.7 percent this week, notching a third consecutive weekly gain.

U.S. shares were mixed, with the S&P ending slightly lower as investors braced for Irma and fretted that Pyongyang could launch another missile test on Saturday, North Korea’s founding day, keeping risk appetite in check going into the weekend.

The Dow Jones Industrial Average <.DJI> rose 13.01 points, or 0.06 percent, to end at 21,797.79, the S&P 500 <.SPX> lost 3.67 points, or 0.15 percent, to 2,461.43 and the Nasdaq Composite <.IXIC> dropped 37.68 points, or 0.59 percent, to 6,360.19.

Stocks elsewhere were slightly higher.

The pan-European FTSEurofirst 300 index <.FTEU3> rose 0.17 percent and MSCI’s gauge of stocks across the globe <.MIWD00000PUS> edged up 0.01 percent.

The U.S. 10-year Treasury yield fell to a 10-month low of 2.016 percent but then rose, with the benchmark notes last up 2/32 in price to yield 2.0559 percent.

(Additional reporting by Sam Forgione, Gertrude Chavez-Dreyfuss, Julia Simon and Lewis Krauskopf and Caroline Valetkevitch in New York; Editing by Nick Zieminski and James Dalgleish)

Venezuela’s monthly inflation rises to 34 percent: National Assembly

Venezuela's monthly inflation rises to 34 percent: National Assembly

By Girish Gupta and Corina Pons

CARACAS (Reuters) – Venezuela’s monthly inflation rate jumped to 33.8 percent in August, with food price rises reaching hyper-inflationary levels above 50 percent, the opposition-controlled National Assembly said on Thursday.

The government stopped releasing the data more than a year ago amid a deep economic crisis, but the National Assembly has published its own figures since January. They are generally in line with private economists’ estimates.

The latest month-on-month inflation figure was a jump from the 26 percent rise in prices reported in July.

In the first eight months of 2017, prices rose a cumulative 366.4 percent, according to the legislative body.

“Food is now in hyperinflation,” said opposition lawmaker Angel Alvarado, adding that the food sector had seen price rises of 51 percent in August.

Economists usually define hyperinflation as occurring when monthly rates exceed 50 percent.

Millions of Venezuelans are suffering from food and medicine shortages as the oil producer struggles with an economic crisis that spurred months of nationwide unrest earlier this year.

However, the protests have died down in recent weeks, with many in the opposition viewing them as fruitless after socialist President Nicolas Maduro’s government sidelined the National Assembly and created its own legislative superbody.

‘ECONOMIC WAR’

The country’s bolivar currency also weakened past 20,000 per dollar on the widely-used black market on Thursday for the first time. It has lost 95 percent of its value against the U.S. currency in the past year.

The value of $1,000 in local currency purchased when Maduro came to power in April 2013 would now be worth $1.20.

Maduro blames the crisis on the country’s opposition and the United States, whom he says are waging an “economic war” against his government.

Critics blame Maduro’s economic policies including a currency policy that pegs the bolivar at 10 per dollar at the strongest rate and the strict price controls which they say disincentivize production.

Opponents also point to a rapidly rising money supply. The country’s M2 figure is up 431 percent in the last year alone.

The exponential rise in M2 – the sum of cash, together with checking, savings, and other deposits – means an exponential rise in the amount of currency circulating.

Coupled with a decline in the output of goods and services, that has accelerated inflation.

(Writing by Girish Gupta; Editing by Paul Simao)

Hurricane Harvey boosts U.S. jobless claims to more than two-year high

FILE PHOTO: Leaflets lie on a table at a booth at a military veterans' job fair in Carson, California October 3, 2014. REUTERS/Lucy Nicholson/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing for unemployment benefits jumped to its highest level in more than two years last week amid a surge in applications in hurricane-ravaged Texas, but the underlying trend remained consistent with a firming jobs 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, which unleashed unprecedented flooding in Houston, disrupted oil, natural gas and petrochemical production and forced a temporary closure of refineries.

Economists say Harvey could put a dent in third-quarter gross domestic product, but expect lost output to be recouped in the October-December period.

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 on Thursday. 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. Claims for Louisiana were also affected by Harvey, though they only increased 258.

In addition, claims for five states and a territory were estimated last week because of the Labor Day holiday on Monday.

JOBS MARKET STILL FIRMING

Economists had forecast claims rising to 241,000 in the latest week. 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 suggesting the labor market continued to strength.

If, however, the flood disruptions in Texas persist, that could hurt job growth in September. The government reported last week that the economy created 156,000 jobs in August, with the private services sector hiring the smallest number of workers in five months.

Economists largely dismissed the slowdown in job growth, blaming it on a seasonal quirk. Over the past several years, the initial August job count has tended to exhibit a weak bias, with revisions subsequently showing strength.

The dollar was trading lower against a basket of currencies. Prices for U.S. Treasuries rose.

In a second report on Thursday, the Labor Department said worker productivity increased at a 1.5 percent annualized rate in the second quarter, instead of the 0.9 percent pace it reported last month. That followed a 0.1 percent rate of increase in the first quarter.

The government last week revised up second-quarter gross domestic product growth to a 3.0 percent rate from a 2.6 percent pace. 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. That was the strongest performance in two years.

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. Unit labor costs were previously reported to have risen at a 0.6 percent pace. They surged at a 4.8 percent rate in the January-March period.

Compared to the second quarter of 2016, unit labor costs fell at a 0.2 percent rate as previously reported.

Hours worked rose at a rate of 2.5 percent in the April-June period as previously reported. That was the quickest pace since the fourth quarter of 2015, and followed a 1.6 percent rate of increase in the first quarter.

As a result, output per worker surged at a 4.0 percent rate, the fastest since the third quarter of 2014, after rising at a1.8 percent pace at the start of the year.

Output was previously reported to have increased at a 3.4 percent pace in the second quarter.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

Subdued by Harvey, Congress reconvenes facing fiscal tests

The U.S. Capitol building is seen at sunset in Washington, U.S. May 17, 2017. REUTERS/Zach Gibson

By Susan Cornwell

WASHINGTON (Reuters) – Hurricane Harvey devastated Texas, but could bring some fiscal order to Washington where Republicans and Democrats will need to put political differences aside in order to approve spending to repair the damage from flooding in and around Houston.

Lawmakers returning to Washington after a month-long break are expected to swiftly agree to an initial request for nearly $8 billion in disaster aid, with the House of Representatives considering assistance on Wednesday.

More requests will follow from the Trump administration, with the fractious Republicans who control the House and the Senate determined to look capable of governing in a crisis.

Some estimates say Harvey could cost U.S. taxpayers almost as much as the total federal aid outlay of more than $110 billion for 2005’s record-setting Hurricane Katrina.

That sobering cost and the urgent needs of Harvey’s victims have helped to calm a fiscal storm that had threatened to engulf Congress and President Donald Trump ahead of Oct. 1. The rancor revolves around the deadline for lawmakers to approve a temporary spending measure to keep the government from shutting down, as well as the need to raise the nation’s debt ceiling.

“There’s reason to hope that in the wake of the tragedy in Texas … there will be a renewed sense of community and common purpose that can help get things done,” said Michael Steel, a Republican strategist who once worked as spokesman for former House Speaker John Boehner.

Before Harvey, Trump had threatened to veto such spending and trigger a shutdown if Congress refused to fund his proposed U.S.-Mexico border wall. He has dropped his threat, the Washington Post reported on Friday, making a shutdown less likely.

As of the Labor Day holiday weekend, approval by Congress was widely anticipated in late September of a stopgap bill, or continuing resolution, to continue current spending levels for two to three more months.

The need to help Hurricane Harvey victims “creates another reason as to why you’d want to keep the government open,” Republican Senator Roy Blunt said on NBC’s “Meet the Press” Sunday.

FRESH START WITH TRUMP

With much of Washington distracted by tensions with North Korea over its nuclear program, Congress must also raise the federal debt ceiling by the end of September or early October to stave off an unprecedented U.S. government debt default, which would shake global markets.

The debt ceiling caps how much money the U.S. government can borrow, and some conservatives are loath to raise it without spending reforms. U.S. Treasury Secretary Steven Mnuchin on Sunday said Congress should act quickly to increase the debt limit, otherwise relief funding for hurricane-ravaged areas of Texas might be delayed.

“Without raising the debt limit, I am not comfortable that we will get money to Texas this month to rebuild,” Mnuchin said on Fox News Sunday.

Blunt, a junior member of Senate Republican leadership, said it was possible lawmakers could tie legislation raising the debt ceiling to measures providing financial aid for recovery from Harvey. “That’s one way to do it,” he said on Meet the Press.

The head of the Republican Study Committee, the largest group of House conservatives, said on Monday that Congress was obligated to help those hurt by Harvey.

But Representative Mark Walker also warned that “legislative games” like attaching Harvey aid to a debt ceiling hike could jeopardize consensus. “The debt ceiling should be paired with significant fiscal and structural reforms,” he said in a statement.

Senior Republicans were warning Trump not to anger Democrats by carrying through with his threat to curtail the Deferred Action for Childhood Arrivals (DACA) program for immigrant children, which Democrats widely support. Democratic votes will likely be needed to both raise the debt ceiling and prevent a shutdown.

Trump might have listened to them. Sources said on Sunday that he has decided to scrap the program that shields the young immigrants from deportation, but he will give Congress six months to craft a bill to replace it.

With his tendency to send conflicting policy signals and attack fellow Republicans, Trump may present the biggest uncertainty as Congress gets back to work.

The four top Republican and Democratic leaders of the Senate and House are set to hold a rare bipartisan meeting with Trump on Wednesday to chart a path forward for the multiple fiscal issues.

Senate Republican leader Mitch McConnell, who will attend the meetings, spent much of August feuding with Trump, who attacked the Kentuckian repeatedly on Twitter.

One Republican strategist said the Senate leader would not dwell on those tensions. “Basically every Republican senator is looking to put whatever nonsense happened on Twitter in August in the rear view mirror and focus on all the important work that needs to get done in September,” said Josh Holmes, a former chief of staff and campaign manager for McConnell.

(Additional reporting by David Morgan and Chris Sanders; Editing by Kevin Drawbaugh and Mary Milliken)

U.S. gasoline prices tumble as Harvey subsides

A pump jack is seen at sunrise near Bakersfield, California October 14, 2014. REUTERS/Lucy Nicholson/File Photo

By Ron Bousso

LONDON (Reuters) – Benchmark U.S. gasoline prices slumped on Monday to pre-Hurricane Harvey levels as oil refineries and pipelines in the U.S. Gulf Coast slowly resumed activity, easing supply concerns.

Brent crude oil futures were flat at $52.75 by 1340 GMT, paring earlier losses after a powerful North Korean nuclear test triggered a shift away from crude markets to assets perceived to be safer, such as gold.

U.S. West Texas Intermediate crude futures, however, were up 34 cents at $47.63 barrel as U.S. demand, hit by reduced refinery activity since Harvey made landfall on Aug. 25, recovered.

NYMEX gasoline futures were down 3.2 percent at $1.6916 a gallon, levels last seen on Aug. 25, the day Harvey struck, crippling production and causing widespread flooding.

Still, damage to the oil infrastructure in the Gulf Coast hub by Harvey appeared less extensive than some had feared.

Harvey has now been downgraded to a tropical storm.

A number of major refineries, which convert crude oil into refined products such as gasoline and jet fuel, as well as distribution pipelines, were gradually resuming operations on Monday.

Valero Energy’s 225,000 barrels per day (bpd) Texas City refinery was the only plant reported to be running at normal rates so far.

At the same time, about 5.5 percent of the U.S. Gulf of Mexico’s oil production, or 96,000 barrels of daily output, remained shut on Sunday, down from a peak of more than 400,000 bpd last week.

“The disruptions from Hurricane Harvey in the U.S. Gulf Coast are gradually clearing. In the broader scheme of things, it appears that so far the energy industry was spared major damages to assets and infrastructure,” analysts at Vienna-based JBC Energy said in a note.

“However, some Houston area refineries will likely remain offline for some time longer.”

Traders booked dozens of gasoline tankers over the past week from Asia and Europe to the United States and Latin America in order to plug supply shortages in the wake of the shutdowns.

European gasoline refining margins dropped by nearly a fifth on Monday.

And while the U.S. government tapped its strategic oil reserves for the first time in five years last week, the head of the International Energy Agency (IEA) said the global energy watchdog still sees no need for a coordinated international release of oil stocks after Harvey.

Texas Governor Greg Abbott estimated damage at $150 billion to $180 billion, calling it more costly than Hurricanes Katrina or Sandy, which hit New Orleans in 2005 and New York in 2012 respectively.

Traders were nervously watching developments in North Korea, where the military conducted its sixth and most powerful nuclear test over the weekend. Pyongyang said it had tested an advanced hydrogen bomb for a long-range missile, prompting the threat of a “massive” military response from the United States if it or its allies were threatened.

That put downward pressure on crude as traders moved money out of oil – seen as high-risk markets – into gold futures traditionally viewed as a safe haven for investors. Spot gold prices rose for a third day, gaining 0.9 percent on Monday.

Overall trading activity in the oil futures market was expected to be low on Monday due to the U.S. Labor Day public holiday.

 

(Additional reporting by Henning Gloystein in Singapore; Editing by Louise Heavens)

 

U.S. envoy says North Korean leader ‘begging for war’ as U.N. mulls sanctions

Secretary of Defense James Mattis (L) makes a statement outside the West Wing of the White House in response to North Korea's latest nuclear testing, as Chairman of the Joint Chiefs of Staff Gen. Joseph Dunford listens, in Washington, U.S., September 3, 2017

By Christine Kim and Michelle Nichols

SEOUL/UNITED NATIONS (Reuters) – The United States on Monday said countries trading with North Korea were aiding its “dangerous nuclear intentions” as the United Nations Security Council mulled tough new sanctions and the isolated regime showed signs of planning more missile tests.

South Korea said it was talking to Washington about deploying aircraft carriers and strategic bombers to the Korean peninsula following the North’s sixth and most powerful nuclear test on Sunday.

At a Security Council meeting, U.S. Ambassador Nikki Haley said North Korea’s Kim Jong Un was “begging for war” and urged the 15-member group to adopt the strongest possible measures to deter him.

“War is never something the United States wants. We don’t want it now. But our country’s patience is not unlimited. We will defend our allies and our territory,” Haley said.

“The United States will look at every country that does business with North Korea as a country that is giving aid to their reckless and dangerous nuclear intentions,” she said.

Haley said the United States will circulate a new Security Council resolution on North Korea this week and wants a vote on it next Monday.

China, a top trading partner with North Korea, and Russia called for a peaceful resolution to the crisis.

“China will never allow chaos and war on the (Korean) Peninsula,” said Liu Jieyi, the Chinese ambassador to the United Nations.

Russia said peace in the region was in jeopardy.

“A comprehensive settlement to the nuclear and other issues plaguing the Korean peninsula can be arrived at solely through political diplomatic channels,” Russia’s U.N. Ambassador Vassily Nebenzia said.

North Korea has been under U.N. sanctions since 2006 over its ballistic missile and nuclear programs. Typically, China and Russia only view a test of a long-range missile or a nuclear weapon as a trigger for further possible U.N. sanctions.

U.S. President Donald Trump had asked to be briefed on all available military options, according to his defense chief.

Officials said activity around missile launch sites suggested North Korea planned more missile tests.

“We have continued to see signs of possibly more ballistic missile launches. We also forecast North Korea could fire an intercontinental ballistic missile,” Jang Kyoung-soo, acting deputy minister of national defense policy, told a parliament hearing on Monday.

North Korea tested two ICBMs in July that could fly about 10,000 km (6,200 miles), putting many parts of the U.S. mainland within range and prompting a new round of tough international sanctions.

 

MILITARY EXERCISES

South Korea’s air force and army conducted exercises involving long-range air-to-surface and ballistic missiles on Monday following the North’s nuclear test on Sunday, its joint chiefs of staff said in a statement.

In addition to the drill, South Korea will cooperate with the United States and seek to deploy “strategic assets like aircraft carriers and strategic bombers”, Jang said.

South Korea’s defense ministry also said it would deploy the four remaining launchers of a new U.S. missile defense system after the completion of an environmental assessment by the government.

The rollout of the controversial Terminal High Altitude Area Defense (THAAD) system at a site south of the South Korean capital, Seoul, which is vehemently opposed by neighboring China and Russia, had been delayed since June.

At the Security Council, neither Russia nor China mentioned their long-held opposition to THAAD or the prospect of further U.N. sanctions in the wake of North Korea’s nuclear test.

North Korea said it tested an advanced hydrogen bomb for a long-range missile on Sunday, prompting a warning from U.S. Defense Secretary Jim Mattis of a “massive” military response from the United States if it or its allies were threatened.

People walk past a street monitor showing a news report about North Korea's nuclear test in Tokyo, Japan, September 3, 2017.

People walk past a street monitor showing a news report about North Korea’s nuclear test in Tokyo, Japan, September 3, 2017. REUTERS/Toru Hanai

Trump has previously vowed to stop North Korea developing nuclear weapons and said he would unleash “fire and fury” if it threatened U.S. territory

Despite the tough talk, the immediate focus of the international response was on tougher economic sanctions.

Diplomats have said the Security Council could now consider banning North Korean textile exports and its national airline, stop supplies of oil to the government and military, prevent North Koreans from working abroad and add top officials to a blacklist to subject them to an asset freeze and travel ban.

Asked about Trump’s threat to punish countries that trade with North Korea, Chinese Foreign Ministry spokesman Geng Shuang said China has dedicated itself to resolving the North Korean issue via talks, and China’s efforts had been recognized.

“What we absolutely cannot accept is that on the one hand (we are) making arduous efforts to peacefully resolve the North Korean nuclear issue, and on the other hand (our) interests are being sanctioned or harmed. This is both not objective and not fair,” he told a regular briefing.

On possible new U.N. sanctions, and whether China would support cutting off oil, Geng said it would depend on the outcome of Security Council discussions.

China’s state-run Xinhua news agency said in an editorial that North Korea was “playing a dangerous game of brinkmanship” and it should wake up to the fact that such a tactic “can never bring security it pursues”.

 

SKEPTICISM

While South Korean President Moon Jae-in and Japanese Prime Minister Shinzo Abe agreed on Monday to work with the United States to pursue stronger sanctions, Russia voiced scepticism.

Russian Deputy Foreign Minister Sergei Ryabkov said sanctions on North Korea had reached the limit of their impact. Any more would be aimed at breaking its economy, so a decision to impose further constraints would become dramatically harder, he told a BRICS summit in China.

South Korea says the aim of stronger sanctions is to draw North Korea into dialogue. But, in a series of tweets on Sunday, Trump also appeared to rebuke South Korea for that approach.

“South Korea is finding, as I have told them, that their talk of appeasement with North Korea will not work, they only understand one thing!” Trump said on Twitter.

Still, Trump’s response was more orderly and less haphazard than he had offered after North Korea’s previous hostile actions.

His handling of its latest nuclear test reflected a more traditional approach to crisis management, which U.S. officials said illustrated the influence of Mattis and the new White House chief of staff, retired Marine Corps General John Kelly.

Japanese and South Korean stock markets both closed down about 1 percent on Monday, while safe-haven assets including gold and sovereign bonds ticked higher, but trade was cautious. U.S. stock markets were closed for the Labor Day holiday.

“Assuming the worst on the Korean peninsula has not proven to be a winning trading strategy this year,” said Sean Callow, a senior foreign exchange strategist at Westpac Bank.

“Investors seem reluctant to price in anything more severe than trade sanctions, and the absence of another ‘fire and fury’ Trump tweet has helped encourage markets to respond warily.”

South Korea’s finance minister vowed to support financial markets if instability showed signs of spreading to the real economy.

(Additional reporting by Shin-hyung Lee, Hyunjoo Jin and Cynthia Kim in SEOUL, Steve Holland, David Brunnstrom, Tim Ahmann, David Shepardson and John Walcott in WASHINGTON, John Ruwitch in SHANGHAI, Wayne Cole and Swati Pandey in SYDNEY; Writing by Lincoln Feast and Jeff Mason; Editing by Robert Birsel and Paul Simao)