By Ann Saphir

(Reuters) – U.S. hiring probably accelerated last month, a range of high-frequency indicators suggests, as the effects of the latest COVID-19 surge began to subside, but even a second straight weak employment report would be unlikely to derail the Federal Reserve’s plans to begin reducing its support for the economy.

Ahead of the U.S. Labor Department’s release on Friday of the nonfarm payrolls report for September, data from firms tracking work patterns signals an outcome in line with the median estimate of a gain of 500,000 jobs in a Reuters poll of economists. And that may be more than enough.

Fed Chair Jerome Powell signaled last month there was broad agreement among policymakers to begin reducing the U.S. central bank’s $120 billion in monthly asset purchases as soon as November, as long as the September U.S. jobs report, in Powell’s words, is “decent.” Even the Fed’s most dovish policymakers – Minneapolis Fed President Neel Kashkari and Chicago Fed President Charles Evans – have indicated their willingness to go along with that timeline for paring back the quantitative easing put in place last year to stem the economic fallout from the coronavirus pandemic.

“We think the bar for QE tapering will be met as long as the payroll print is above zero,” said Lydia Boussour, lead U.S. economist at Oxford Economics. Boussour forecasts that 384,000 jobs were gained last month.

The path to normalizing monetary policy cleared further on Thursday after U.S. lawmakers reached a temporary deal to raise the federal government’s debt limit. The move averts a potential debt default later this month that would have forced the Fed back into crisis-fighting mode.

The latest surge in U.S. coronavirus cases peaked in mid-September. Estimates are mixed on how much of a damper that had on job growth during the month. The lowest estimate in the Reuters poll is for an overall gain of 250,000 jobs in September; the highest is 700,000.

The ADP National Employment Report, which has a poor track record of predicting the broader Labor Department’s report but provides some clues, on Wednesday showed private payrolls increased 568,000 last month, beating economists’ expectations, as restaurants and other in-person businesses resumed hiring.

Payroll data from Homebase https://joinhomebase.com/data showed a 5% decline in employment in September among the 50,000 small businesses it tracks, but it said the drop was likely due to seasonal effects rather than underlying weakness.

A report this week from payroll management firm UKG showed the number of shifts worked by U.S. employees stabilized in September after falling in August. That’s broadly consistent with economists’ current estimates of job growth last month, UKG Vice President Dave Gilbertson said.

Graphic: Shifts worked still subpar, https://graphics.reuters.com/USA-ECONOMY/zjvqkjryrvx/chart_eikon.jpg

Shifts worked in the leisure and hospitality sectors fell during the month, likely due to workers opting out of in-person jobs when possible due to concerns about the virus.

And work in manufacturing, Gilbertson noted, rose less than usual for September, likely reflecting supply chain bottlenecks and potentially auguring poorly for the retail sector during the upcoming holiday season.

“We know for sure it (job growth in September) didn’t accelerate in the way people were hoping it would accelerate, but we can also be pretty confident in saying this was not a crash,” he said.

VIRUS ECONOMY

Forecasts from the U.S. Centers for Disease Control and Prevention suggest daily COVID-19 infections will continue to fall in coming weeks. Most economists expect that would allow job gains to accelerate further as the year progresses.

Jefferies economist Aneta Markowska expects Friday’s report to show an overall gain of 300,000 jobs and a decline in leisure and retail jobs, reflecting some people’s reluctance to work in high-contact jobs during the recent upswing in COVID-19 cases.

Graphic: September slump?, https://graphics.reuters.com/USA-ECONOMY/lbpgngklyvq/chart_eikon.jpg

Markowska, however, expects that trend to likely reverse in the face of the drop in cases. “Restaurant bookings, domestic flight activity and hotel occupancy/rates all appear to be bottoming out, and we expect further gains ahead as offices reopen, business travel resumes, and as personal travel picks up around the holidays,” she wrote this week.

A paper https://www.chicagofed.org/publications/chicago-fed-letter/2021/461 by Chicago Fed researchers published this week injects a note of caution into that projection.

Scott Brave, an economist, and his colleagues looked to see how well COVID-19 vaccinations have been insulating the labor market from the negative impact of the recent rise in cases.

Through late September, they found, “the positive impacts of rising vaccination rates were sufficient to offset the negative impacts of the recent resurgence in the virus.”

While vaccinations look like they will continue to “win the race” for the next month or two,” Brave said, benefits to the job market already have plateaued and could erode if projections for another coronavirus surge late in the year prove to be correct.

(Reporting by Ann Saphir; Editing by Dan Burns and Paul Simao)

---