Investors will be scrutinizing data this week--especially the unpredictable August job report on Friday--for anything that may sway the Fed at its September meeting.
For Morningstar, I'm Jeremy Glaser and welcome to The Week Ahead, our quick take on what investors should have on their radar screens for the week starting Aug. 31.
After a week that could charitably be described as volatile, investors will be scrutinizing economic data for hints of what the Fed will do at its September meeting. At the top of that list will be Friday's jobs report.
July's report was fairly boring, with 215,000 jobs added, around what economists had expected. For August, the current consensus is that the economy created roughly the same number of jobs.
But if we've learned anything about the jobs report this recovery, it is to expect the unexpected in August. The initially reported number has been very weak several years in a row. Just last year, the number was below 100,000. Some of this weakness was revised away later, but there is a clear pattern of disappointment here. So don't be shocked if the August number turns out to be well below trend, even if expectations are that steady growth will continue.
This particular report also takes on special importance, given that it is the last jobs data the Fed will get before its mid-month meeting. The Fed has said time and time again that any decision they make on a rate increase will be data-dependent. They've said we're approaching conditions in the labor market that would warrant a rate hike, and an in-line or better-than-expected jobs report could help convince them that the time has come to act.
But remember a strong August jobs report is a necessary, but far from sufficient, catalyst to see a rate hike in September. For the Fed to act, they also need to see inflation approaching their 2% target. In addition, according to their minutes, the Fed was already nervous about what was going on overseas at their last meeting. And those fears can only have been stoked more by the volatility and China-related worries of the last week. So a cautious Fed could very well wait no matter how strong August looks.
Also on the data front, we'll get the closely watched ISM purchasing managers index on Tuesday. This survey gives a snapshot of the U.S. manufacturing sector--a part of the economy that has been struggling in the face of a strong dollar and declining energy prices. There have been some signs of stabilization both in this survey and other metrics, so we'll be watching to see if that holds in this report.
Stay tuned to Morningstar for our take on all of these stories, including Bob Johnson's reaction to the jobs report on Friday.
