Before The Bell - Investors come back from the long Labor Day weekend with the knowledge that the Delta variant is taking a toll on job growth. That is evident from Friday’s disappointing government payroll report, which saw a much-less-than-projected 235,000 jobs added in August. The expectation was for about three times as many.

The monthly payroll report frequently sets the tone for the market, since it provides a snapshot of demand for labor and carries considerable weight with policy makers at the Federal Reserve.

The latest jobs data was not a complete letdown. Figures from the previous two months were revised higher and wage gains were notable. But the implication of slower job growth is that the economy is likely to expand at a less rapid rate than before the spread of the Delta variant.

Hiring in situations that requires close customer contact, such as in the leisure and hospitality industries, was uninspired in August, after having been a mainstay for job growth from January to July. Restaurants are seeing a few less customers and the comeback in business travel is stalling.

Of some concern is that the damage caused by Delta version of the coronavirus is just starting to show up in the data. Estimates for GDP going forward are beginning to ease as a result. The increased push for vaccinations, if heeded, could help reduce infections. But there is a possibility that some companies will reduce their earnings projections in the coming weeks.

The silver lining to the deceleration in employment gains is the Federal Reserve probably won’t be as quick to reduce its aggressive pace of monthly securities purchases. Interest rate hikes are already off the table for a while. But the Fed would have been more inclined to back off its asset-buying program if job growth in August had continued at a rate similar to the upwardly revised 1.05 million rate seen in July.

Central bank support should remain broadly supportive of the economy and, in turn, the stock market. Investors will be weighing other factors, though, including the increased impact of the Delta variant, the stubborn supply-chain problems many companies are experiencing, and the terrible damage wreaked by Hurricane Ida last week.

Friday’s tale of the tape showed a 75-point loss for the Dow Jones Industrial Average; but a 32-point rise on the NASDAQ; while the S&P 500 inched lower.

Stock futures this morning thus far are showing little direction. - Robert Mitkowski

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.