Labor Day to labor report as Sept kicks off

A look at the day ahead in U.S. and global markets

By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets

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Wall Street gets September off to a late start with a holiday- shortened week that focuses squarely on the U.S. jobs market after last month’s unemployment rate scare sparked a mini panic.

Returning from Monday’s Labor Day holiday, U.S. markets seem in a more comfortable place than they were a month ago when July’s outsize jump in the U.S. jobless rate to 4.3% re-ignited recession fears and aggravated a volatility squall.

The S&P500 has recovered all of those losses since, however, returning to within a whisker of July’s record highs on Friday – even though futures are slightly in the red ahead of Tuesday’s opening bell.  

A “Help Wanted” sign hangs in restaurant window in Medford, Massachusetts, U.S., January 25, 2023. REUTERS/Brian Snyder

 As a roller-coaster August played out, the jump in the unemployment rate was downplayed as partly distorted and subsequent weekly jobless readings were much healthier – while the Federal Reserve clearly switched its focus to the labor market and all but confirmed a September interest rate cut.

The size of that Fed cut seems to be the only debate – with futures markets convinced of at least a quarter-point move on September 18 and pricing about a one-in-four chance of a larger reduction of 50 basis points. What’s remained pretty constant over the past week or so has been the 100bp of Fed cuts in market pricing to the year-end – which would imply at least one 50bp Fed cut at one of its remaining 2024 meetings.

Critical to that thinking will be the August payrolls report on Friday, with consensus forecasts for a pick-up in jobs growth to 160,000 last month and a retreat in the jobless rate to 4.2%.

Before then we get a whole heap of other labor market soundings – private sector surveys and layoffs data for August, July job opening numbers and another weekly jobless readout.

But Tuesday kicks off with critical updates on recently ailing manufacturing – with ISM and S&P Global surveys on the U.S. factory sector due. ISM’s survey showed manufacturing employment contracting in July at its fastest pace since June 2020.

Part of the downturn in global manufacturing stems from the economic funk in China, where surveys released this weekend showed factory activity there sank to a six-month low in August and factory gate prices tumbled.

And the ripple effects from that are clearly felt in Europe, where the equivalent euro zone factory survey for August came in marginally above ‘flash’ estimates but still deep in the contraction mode it’s been registering for two years solid.