WASHINGTON (Reuters) – U.S. employment growth likely pulled back in August after gaining nearly 2 million jobs in the past two months as soaring COVID-19 cases reduced demand for travel and entertainment, but the pace was probably enough to sustain the economic expansion.
The Labor Department’s closely watched employment report on Friday would come as economists have been sharply marking down their gross domestic product estimates for the third quarter. Reasons cited include the resurgence in infections, driven by the Delta variant of the coronavirus, and relentless shortages of raw materials, which are depressing automobile sales and restocking.
Surging COVID-19 cases could also have kept some unemployed people home, frustrating efforts by employers to boost hiring.
“The Delta variant is like a sandstorm in an otherwise sunny economy,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. “If it weren’t for that, employment in August would have been even higher.”
According to a Reuters survey of economists nonfarm payrolls likely increased by 750,000 jobs last month. The economy created 1.881 million jobs in June and July. Should job growth in August meet expectations, that would leave the level of employment about 5 million jobs below its peak in February 2020.
But the forecast is highly uncertain, with estimates ranging from 375,000 to 1.027 million.
High frequency indicators have suggested a softening in demand for air travel, hotel accommodation and in-person dining, which some economists expect led to a moderation in leisure and hospitality job growth.
Reports this week showed a measure of factory employment contracting and private payrolls undershooting expectations. But hiring by small businesses accelerated and consumers’ views of the labor market remained fairly upbeat.
Over the last several years, including in 2020, the initial August payrolls print has undershot expectations and been slower than the three-month average job growth through July.
“COVID effects may make this comparison to the trend less useful, however, August payrolls have been revised higher with the subsequent two jobs reports in 11 of the last 12 years, including last year,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.
Friday’s report will be crucial for financial markets as investors try to gauge the timing of the Federal Reserve’s announcement on when it will start scaling back its massive monthly bond buying program.
Fed Chair Jerome Powell last week affirmed the ongoing economic recovery, but offered no signal on when the U.S. central bank plans to cut its asset purchases beyond saying it could be “this year.”
Jim O’Sullivan, chief U.S. Macro Strategist at TD Securities in New York, who is forecasting a 400,000 rise in payrolls in August, does not believe this would be weak enough for the Fed to back away from their “this year” signal.
“But it would probably increase the probability of a