By Lucia Mutikani

WASHINGTON, (Reuters) – The September wave of COVID-19-related infections in the summer caused a slowdown in U.S. employment growth. This fueled demand for high-contact services such as dining out and positioned the Federal Reserve to reduce its monthly bond purchases.

According to the Labor Department’s Friday employment report, a sharp decline in economic activity was likely temporary. The pandemic continues to limit the economy and the labor market.

James Knightley of ING New York said that with COVID on a clearly downwards path, he believes the jobs report should have a pretty good rating. However, there remain clearly tensions in the market due to the fact that the labor supply story is still very limited.

A Reuters survey of economists found that nonfarm payrolls increased by 500,000 jobs in the last month. This would bring down employment to 4.8 million, below its peak of February 2020.

The estimates range from 700,000.00 to just 250,000. August saw the economy add 235,000 jobs, which was the lowest in seven months. The leisure and hospitality sector has been slowing down, with the hiring process stalling. A seasonal glitch, apart from the Delta variation, was also a problem. Economists anticipate that August payrolls, in line with past trends, will be raised.

According to Reuters, COVID-19 infection rates are declining in the United States. On average, there were 100,815 new cases per day. This is based on data from both state and local government as well as healthcare authorities.

Only September’s unemployment report will be available prior to the Fed’s Nov. 2-3/Policy Meeting. Last month, the U.S. central banking indicated that it may begin to taper its monthly bond purchases as early as November.

Jerome Powell, Fed chair, told reporters it “would take a reasonably strong employment report to meet the threshold of the central bank for reducing its enormous bond buying program.”

Economists believe that the criteria will be fulfilled in September’s report. This is expected to also show a drop in unemployment to 5.1%, from August’s 5.2%.

On Thursday, the U.S. Senate took a decision to extend the Treasury Department’s borrowing authority up until December. This increased the probability of a taper.

Lou Crandall from Wrightson ICAP in New York, said that virtually any payroll gain exceeding August’s 235,000 increases would be a check for this box.

SPEED BUMP

In September, labor market indicators were mixed. The ADP National employment report on Wednesday showed stronger-than-expected private payrolls growth last month. Between mid-August to mid-September, the number of state unemployment rolls declined.

A survey by the Conference Board showed that consumers have a softening view of current labor market conditions, according to a report. While manufacturing employment saw a rebound last month according to the Institute for Supply Management, it fell for services employment.

In part, the economy experienced a slowdown in the third quarter due to the spike in summer coronavirus infections, a halt in pandemic relief money flowing from the government, and the dearth of raw materials which has hampered motor vehicle sales.

According to the Atlanta Fed, gross domestic product growth slowed to 1.3% annually in July-September. 2.7% was the pace of economic growth in the second quarter.

It is likely that the leisure and hospitality industry led the expected pick-up in hiring, reflecting an increase in restaurant and bar payrolls, which dropped by 42,000 jobs last August. Businesses are gearing up for holiday season, which will see a rebound in retail hiring.

Most likely, manufacturing jobs have slowed due to input shortages, particularly in semiconductors. General Motors and Ford Motor announced in September production cuts as part of their management of chip supplies.

The government payrolls are likely to rebound as schools reopened fully for learning in person. It is possible to be optimistic that women are now more involved in the workforce due to the opening of schools.

For signs of worker shortages, economists will be keeping an eye on the percentage of people working age in the labour force.

More than 6,000,000 people were affected by federal government-funded benefits that ended in September. Businesses and Republicans blamed the shortage of workers for expanding benefits that provided unemployment checks for people who didn’t qualify for regular state benefits for jobless.

End of July saw a record 10.9million job openings. However, many people without jobs appeared to be able to save some of their money so they are not in a hurry to search for new employment.

The labor force participation rate is the percentage of Americans over the age of 18 who are employed or looking for work has not increased despite the fact that 25 Republican-led states have ended the extended benefits.

According to economists, a substantial portion of workers who left the workforce are now in retirement. The reason for this is a combination of a robust stock market and record high house prices, which have boosted family wealth. The number of self-employed has increased.

Joseph Briggs of Goldman Sachs (NYSE) said, “The current labor crisis will be eased considerably this fall, particularly following the expiration in September federal benefits programs. But we still project a over one million hit the labor market from early retirees or other labor force exits in 2022.”