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Coming Week: Concerns for Credit

The credit markets will be in focus again, along with jobs data, in a holiday-shortened week.

Concerns over the credit crunch look set to remain at the forefront of investors' minds in the shortened post-Labor Day holiday week.

One thing remains clear: We are not out of the woods yet. That's despite a triple dose of at least somewhat reassuring news Friday -- fair economic data in the form of lower-than-expected inflation, a soothing speech from

Federal Reserve

Chairman Ben Bernanke and a proposed White House plan to help cash-strapped homeowners.

No sooner will traders return from the Monday holiday than they will be greeted by a key piece of data. On Tuesday, the Institute for Supply Management's August manufacturing index will be released. That will be followed two days later by the ISM services index, which gives a similar snapshot of the nonfactory sector.

"These are both important and timely indicators and are some of the earliest readings on economic activity for August and do include the period of market turmoil," says Julia Coronado, a senior U.S. economist at Barclays Capital in New York. "In particular, they will give an indication of whether the fallout from financial turmoil has spilled into the real economy."

The consensus is for the ISM index for last month to fall to 53 from 53.8 in July. A reading of above 50 indicates that the sector is expanding, whereas one under 50 portends a shrinking segment. The services index is projected to fall to 54.5 from its previous reading of 55.8.

Exactly how much the real economy has been affected will have a direct bearing on the Fed's interest rate decision at its Sept. 18 Federal Open Market Committee meeting, which is something market strategists will be watching closely.

Put simply, the worse things are looking in the economy, the larger will be the potential reduction in the fed funds rate. And it does seem clear that some form of a cut is coming. Miller Tabak says the fed funds futures market is pricing in a 100% chance of a quarter-point cut at the September meeting, with another quarter-point cut expected by year-end.

On Wednesday, the Fed publishes its Beige Book report detailing activity in the different regional economies, which will further help analysts get a reading on how the central bank will be thinking.

Friday rounds out the week with unemployment and payroll data from the Department of Labor.

The consensus estimate is calling for the jobless rate to remain steady at 4.6%, with payrolls adding 120,000 new positions, up from 92,000 in the prior period.

But because the measurement period doesn't cover the whole of the credit troubles, the market will likely "discount" the jobs data somewhat, says Joe Brusuelas, chief U.S. economist at IDEAglobal in New York. For that reason, he says, action will be driven more by forward-looking speculation about the strength of the credit markets.

Monthly auto sales from the likes of


(F) - Get Free Report



(GM) - Get Free Report



(TM) - Get Free Report

are also expected, as are chain-store sales from the nation's retailers.

On the earnings front, announcements from major firms are sparse. Most market strategists are waiting for the release of third-quarter earnings reports from financial services firms later this month, which will give a clearer picture of how deep the banks felt the pain during the recent credit market malaise.

Still, Thursday will mark the biggest reporting day, as homebuilder

Hovnanian Enterprises

(HOV) - Get Free Report

is expected to report its second-quarter performance. Analysts across the board are forecasting various degrees of losses for the firm.

Also set to report that day are tech firm

National Semiconductor


and food processor

Campbell Soup

(CPB) - Get Free Report


Starting Tuesday, other notable companies expected to print figures include apparel maker


(GES) - Get Free Report

, followed a day later by shoe retailer


(DSW) - Get Free Report

and preppie-garb seller

J. Crew