U.S. job growth accelerates after Delta setback

WASHINGTON, Oct. 8 (Reuters) – Job growth in the United States likely accelerated in September as the summer wave of COVID-19 infections began to abate, fueling demand for services to contact top like dining out, and positioning the Federal Reserve to begin reducing its monthly bond buying spending.

The closely watched Labor Department employment report on Friday would also suggest that an apparent sharp slowdown in economic activity in the third quarter was likely temporary. Yet the labor market and the economy at large remain constrained by the shortages of workers and raw materials caused by the pandemic.

“With COVID clearly on a downward trajectory, I think the jobs report should be pretty good,” said James Knightley, chief international economist at ING in New York. “But there are still clearly tensions in the labor market, in that the history of labor supply remains very limited.”

According to a Reuters survey of economists, non-farm payrolls likely increased by 500,000 jobs last month, which would leave the employment level of around 4.8 million jobs below its peak of February 2020.

Estimates range from 700,000 jobs to 250,000. The economy created 235,000 jobs in August, the lowest number in seven months, as hiring in the leisure and hospitality sector stalled. Besides the Delta variant, a seasonal quirk was also a drag, and economists expect the August payroll to be revised upward in line with the trend of previous years.

COVID-19 infections are declining in the United States, with 100,815 new infections reported on average every day, according to Reuters analysis of data from state and local governments, as well as health authorities.

The September jobs report is the only one available ahead of the Fed’s November 2-3 policy meeting. The US central bank signaled last month that it could start cutting its monthly bond purchases as early as November.

Fed Chairman Jerome Powell told reporters that “it would take a reasonably good employment report” to meet the threshold set by the central bank to scale back its massive bond purchase program.

Economists expect the criteria to be met in the September report, which should also show the unemployment rate drops to 5.1% from 5.2% in August.

The likelihood of a cut was bolstered by the fact that the US Senate on Thursday decided to increase the Treasury Department’s borrowing power through December. Read more

“Virtually any payroll gain greater than the August 235,000 increase would tick that particular box for the Fed,” said Lou Crandall, chief economist at Wrightson ICAP in New York City.

SPEED CUT

Labor market indicators were mixed in September. ADP’s national employment report released on Wednesday showed stronger-than-expected private wage growth last month. The number of people on the state’s unemployment lists fell between mid-August and mid-September.

But a Conference Board poll last week showed that consumer views on current labor market conditions have softened. While the Institute for Supply Management’s measure of manufacturing employment rebounded last month, its measure of service sector employment slipped.

The economy slowed in the third quarter in part because of the summer spike in coronavirus cases, a ebb in the flow of government pandemic relief money and scarce commodities, which hammered home sales of motor vehicles.

The Atlanta Fed estimates that gross domestic product growth slowed to an annualized rate of 1.3% during the July-September quarter. The economy grew at a pace of 6.7% in the second quarter.

The leisure and hospitality sector likely led the expected recovery in hiring last month, reflecting a rebound in restaurant and bar payrolls, which fell by 42,000 jobs in August. A rebound in retail hires is expected as businesses gear up for the holiday season.

Employment in manufacturing has likely slowed, likely limited by shortages of inputs, especially semiconductors. General Motors (GM.N) and Ford Motor Co (FN) announced production cuts at some factories in September as they manage their supply of chips.

Government payrolls likely rebounded with the complete reopening of schools for in-person learning. There is cautious optimism that returning to classrooms has boosted the share of women in the workforce.

Economists will also monitor the proportion of the working-age population in the labor force for signs of whether labor shortages are starting to ease.

Federally funded benefits expired in early September, affecting more than 6 million people. The expanded benefits, which offered unemployment checks to people who were not entitled to regular state unemployment benefits, were blamed by businesses and Republicans for the shortage of workers.

There was a record 10.9 million vacancies at the end of July. But many unemployed people seemed to have hidden some government money and are therefore in no rush to start looking for a job.

The labor force participation rate, or the proportion of working-age Americans who have or are looking for a job, barely budged even as around 25 states led by Republican governors ended benefits expanded this summer.

Some economists say a significant portion of those who dropped out of the workforce have retired, thanks to a strong stock market and record hikes in house prices, which have boosted household wealth. Self-employment has also increased.

“The current labor shortage will ease significantly this fall, especially after federal benefit programs expire in September, but we still expect over a million people to be affected by early retirement. and other labor force departures at the end of 2022, ”said Joseph Briggs, economist at Goldman Sachs in New York.

Reporting by Lucia Mutikani Editing by Chizu Nomiyama

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