To The Moon

New data on the U.S. labor market will be in focus this week, offering an updated look at how economic activity has been impacted as the spread of the Delta variant ramped up in the U.S. over the summer.

The Labor Department's August jobs report will be the marquee economic report out this week. Consensus economists expect to see that a still-robust 750,000 jobs came back in August, according to Bloomberg data. This would represent a significant print by pre-pandemic standards, but still mark a deceleration from July's increase of 943,000 jobs. The unemployment rate likely improved further, reaching 5.2% from the 5.4% reported during July.

The August jobs report is set to be an especially telling report, capturing the impact of the latest surge in coronavirus cases on the U.S. labor market. Other recent economic reports already began to reflect the Delta variant impacts on activity: Job creation in the U.S. services sector slowed by the most since February, while manufacturing sector workforce numbers increased by the least since last year, according to IHS Markit's latest purchasing managers' index reports.

"High frequency labor market data are signaling a marked slowdown in employment activity in the August payroll survey week, suggesting downside risk to our forecast," Bank of America economist Michelle Meyer wrote in a note on Friday, adding that she expects non-farm payrolls to grow by just 600,000 for August.

"Our below-consensus non-farm payrolls forecast is predicated on the markedly weaker high frequency employment data between the July and August payroll survey periods," Meyer added. "Specifically, the Homebase and UKG employment series were both down 3.4% and 2.4%, respectively, over the month."

The outcome of the August jobs report will also be another closely watched data point informing the Federal Reserve's next moves on monetary policy, signaling whether the labor market has recovered enough to warrant a less accommodative tilt. Namely, many Fed officials have been waiting to see the evolution of the labor market recovery to determine the timing for the central bank to announce tapering of its $120 billion per month asset purchase program.

Last week, Federal Reserve Chair Jerome Powell said during the central bank's virtual Jackson Hole symposium that there has "been clear progress toward maximum employment" and suggested "it could be appropriate to start reducing the pace of asset purchases this year" if the recovery continues to improve.

However, he also flagged the ongoing risks introduced by the Delta variant, and added that an "ill-time policy move" could knock the recovery off its trajectory.

NEW YORK, NEW YORK - MAY 27: People walk near Little Island park on May 27, 2021 in New York City. On May 19, all pandemic restrictions, including mask mandates, social distancing guidelines, venue capacities and restaurant curfews were lifted by New York Governor Andrew Cuomo. (Photo by Noam Galai/Getty Images)Noam Galai via Getty Images

"Given the emphasis that Powell and other FOMC members have placed on incoming data — especially on the labor market — the payrolls report will probably take on even greater importance than usual," Jonas Goltermann, senior markets economist for Capital Economics, wrote in a note on Friday. "We expect another robust increase in U.S. employment,"

Other data in Friday's jobs report will include average hourly wage changes. These are expected to grow 0.3% over last month and 4.0% over last year, with these paces remaining roughly unchanged compared to July. The increases are set to come as job growth slows across lower-wage roles after an initial reopening surge in hiring in the spring and early summer, and as worker shortages push up compensation costs across many firms.

Consumer confidence

Other economic data due for release this week will reflect consumers' assessments of the recovery.

The Conference Board's consumer confidence index is set for release on Tuesday, with a drop baked into the forecast. Consensus economists expect the index to slip to 123.0 for August, down from 129.1 in July, according to Bloomberg data. July's print had been the highest since February 2020, marking a rebound in confidence back to pre-pandemic levels.

The Conference Board's labor differential, or difference between those who said jobs are "plentiful" less those who said jobs were "hard to get," also increased to the most since 2000 in last month's report, pointing to the abundance of job openings as employers seek out workers to meet rising demand.

Consumer confidence and sentiment indices have been monitored closely this year as a gauge of the outlook among Americans at large, pointing to consumers' propensity to spend and presaging demand trends for goods, services and labor down the line. The data have been bumpy in recent months, however, and have ebbed and flowed largely in line with COVID-19 infection trends.

The latest surge in the Delta variant catalyzed a collapse in the University of Michigan's Surveys of Consumers index for August, suggesting the Conference Board's measure might also see a similar dip for the month. The University of Michigan's consumer sentiment index slid to a 10-year low in August, plunging to 70.3 from July's 81.2.

"Consumers' extreme reactions were due to the surging Delta variant, higher inflation, slower wage growth, and smaller declines in unemployment," Richard Curtin, Surveys of Consumers chief economist, wrote in a press statement. "The extraordinary falloff in sentiment also reflects an emotional response, from dashed hopes that the pandemic would soon end and lives could return to normal."

Economic calendar

• Monday: Pending home sales, month-over-month, July (0.4% expected, -1.9% in June); Dallas Fed Manufacturing Activity index, August (23.0 expected, 27.3 in July)

• Tuesday: FHFA Home Price index, month-over-month, June (1.9% expected, 1.7% in May); S&P CoreLogic Case-Shiller 20-City index, month-over-month, June (1.87% expected, 1.81% in May); S&P CoreLogic Case-Shiller 20-City index, year-over-year, June (18.60% expected, 16.99% in May); MNI Chicago PMI, August (68.0 expected, 73.4 in July); Conference Board Consumer Confidence, August (123.4 expected, 129.1 in July)

• Wednesday: MBA Mortgage Applications, week ended August 27 (1.6% during prior week); ADP employment change, August (650,000 expected, 330,000 in July); Markit U.S. Manufacturing PMI, August final (61.2 expected, 61.2 in prior print); Construction spending, month-over-month (0.2% expected, 0.1% in June); ISM Manufacturing index, August (58.5 expected, 59.5 in July)

• Thursday: Challenger Job Cuts, year-over-year, August (-92.8% in July); Initial jobless claims, week ended August 28 (346,000 expected, 353,000 during prior week); Continuing claims, week ended August 21 (2.862 million during prior week); Unit labor costs, 2Q final (1.0% expected, 1.0% in prior print); Trade balance, July (-$74.1 billion expected, -$75.7 billion in June); Factory orders, July (0.3% expected, 1.5% in June); Durable goods orders, July final (-0.1% in prior print); Non-defense capital goods orders, excluding aircraft, July final (0.0% in prior print); Non-defense capital goods shipments, July final (1.0% in prior print)

• Friday: Change in non-farm payrolls, August (750,000 expected, 943,000 in July); Change in manufacturing payrolls, August (700,000 expected, 703,000 in July); Unemployment rate, August (5.2% expected, 5.4% in July); Average hourly earnings, month-over-month, August (0.3% expected, 0.4% in July); Average hourly earnings, year-over-year, August (3.9% expected, 4.0% in July); Markit U.S. services PMI, August final (55.2 expected, 55.2 in prior print); Markit U.S. composite PMI, August final (55.4 in prior print); ISM Services Index, August (62.0 expected, 64.1 in July)

Earnings calendar

• Monday: Zoom Video Communications (ZM) after market close

• Tuesday: Crowdstrike (CRWD) after market close

• Wednesday: Campbell Soup (CPB) before market open; Okta (OKTA), Chewy (CHWY), C3.ai (AI), Asana (ASAN) after market close

• Thursday: American Eagle Outfitters (AEO) before market open; Broadcom (AVGO), DocuSign (DOCU), MongoDB (MDB) after market close

• Friday: No notable reports scheduled for release