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[News] U.S. Manufacturing PMI Continues to Contract, but Computer & Electronics Industry Rebounds Strongly
Summary:
- Manufacturing PMI slight uptick
- New orders and production sub-indices continue to decline
- Uneven demand recovery across sectors
The U.S. manufacturing PMI showed a slight uptick in August, according to data released by the Institute for Supply Management (ISM) on September 3rd while overall consumer demand continued to weaken. The manufacturing PMI for August registered at 47.2, a modest increase of 0.4 points from July, but it remained in contraction territory for the fifth consecutive month.
In terms of the component indices, the new orders and production indices fell to 44.6 (from 47.4) and 44.8 (from 45.9), respectively, while increases in the employment and inventory indices helped lift the overall PMI slightly. This reflects the ongoing restrictive monetary policy and uncertainty surrounding the U.S. presidential election, which have dampened corporate investment sentiment. The persistent weakness in demand has further driven down production, putting additional pressure on corporate profits.
However, not all industries are facing weak demand prospects. For instance, respondents in the food & tobacco, and computer & electronics industries noted that demand has shifted from the slowdown in the first half of the year to stable growth. Particularly, the computer & electronics sector was the only industry among the 17 covered by the survey that saw increases across new orders, production, backlogs, and inventory indices, indicating a more robust recovery in demand.
On the other hand, industries such as machinery, paper, and chemicals reported that various uncertainties are causing demand to cool, highlighting the uneven nature of demand recovery across sectors.
Insights
[News] Key Economic Indicators to Watch in the Week ahead: U.S. Manufacturing PMI and More
As the unwinding of yen carry trades came to an end, the market returned to a more stable state, though it remains highly sensitive to economic data. The S&P 500’s gains narrowed due to underperformance in some tech stocks, while it also faced the challenge of reaching new highs. Meanwhile, U.S. 2-year and 10-year Treasury yields edged higher due to shifting expectations around rate cuts, though the overall yield spread narrowed to a range of -10 to 0 basis points. The U.S. Dollar Index also saw a slight increase, driven by reduced expectations of rate cuts from the Federal Reserve.
Economic Data Review for Last Week:
- U.S. PCE (July): The July Personal Consumption Expenditures (PCE) price index rose by 2.5% year-on-year (same as the previous month) and 0.2% month-on-month (up from 0.1%). Within the details, goods inflation was flat at 0% year-on-year (up from -0.2%), while services inflation increased 3.7% year-on-year (down from 3.8%), as both factors have a limited impact on overall inflation decline. Core PCE, which excludes food and energy, increased by 2.6% year-on-year (unchanged from the previous month) and 0.2% month-on-month (also unchanged), both in line with market expectations.
- China CPI (July): The July Consumer Price Index (CPI) rose by 0.5% year-on-year (up from 0.2%), marking the sixth consecutive month of positive growth and exceeding market expectations. The increase was mainly driven by food prices, which were affected by extreme weather conditions. Excluding volatile food and energy prices, core CPI rose by only 0.4% year-on-year, down from 0.6% in the previous period.
Key Data to Watch This Week:
- U.S. ISM Manufacturing PMI (9/3): The U.S. ISM Manufacturing PMI for July came in at 46.8 (down from 48.5). The decline in July mainly reflects reduced investment in manufacturing due to high interest rates, along with continued weakness in goods demand, leading companies’ production and revenue to contract prompting them to implement cost-saving measures such as layoffs and hiring freezes. The market expects the Manufacturing PMI to recover slightly to 47.5, but it is still expected to remain in contraction territory.
- Bank of Canada Monetary Policy Meeting (9/4): The Bank of Canada (BOC) has cut rates by 50 basis points since June. As inflation continues to decline, the BOC has increasingly shifted its focus to cope with economic weakness. The market expects the BOC to announce another 25 basis point rate cut at its September meeting, with two more cuts likely by the end of the year.
- U.S. ISM Non-Manufacturing PMI (9/5): The U.S. ISM Non-Manufacturing PMI (NMI) for July was 51.4 (up from 48.8). The rebound in July mainly reflects strong business activity, although respondents indicated potential challenges ahead, and they remain cautious due to the upcoming U.S. presidential election. The market expects the NMI to decline slightly to 50.9, but it is still anticipated to remain in expansion territory.
- U.S. Employment Situation Report (9/6): In the household survey, the unemployment rate rose to 4.3% in July (up from 4.1%), mainly reflecting an increase in labor supply and reduced hiring by companies. In the establishment survey, nonfarm payrolls increased by 114,000 in July (down from 206,000), significantly below the 12-month average of 215,000. Overall, the labor market appears to have returned to a balanced state, with no signs of widespread layoffs, though ongoing developments should be closely monitored. The market expects the unemployment rate to fall back to 4.2%, with nonfarm payrolls expected to rise by 164,000 in August.
Insights
[News] China’s Manufacturing PMI Contracts for Fourth Straight Month, Falling to 49.1 in August
Summary:
- Manufacturing PMI Remains in Contraction
- Non-Manufacturing PMI Slight Increase
China’s manufacturing PMI continued to decline, as reported by the National Bureau of Statistics of China on August 31. The manufacturing PMI decreased from 49.4 in July to 49.1 in August, falling short of market expectations of 49.5 and marking the fourth consecutive month of contraction.
In terms of the PMI sub-indices, nearly all indicators declined in August, with only the supplier delivery time index showing a slight increase. However, all indices remained in contraction territory. Notably, the production and new orders indices have been on a downward trend since March 2024.
Meanwhile, the non-manufacturing PMI slightly increased from 50.2 in July to 50.3 in August. By industry, while the service sector’s business activity index rose by 0.2, the construction sector’s business activity index declined again to 50.6, marking the fourth consecutive month of decline.
Overall, China’s domestic economy continues to be weighed down by the real estate market, leading to insufficient effective demand. On the other hand, the government has yet to implement large-scale economic stimulus measures, and with only four months left in 2024, the pressure to achieve the annual GDP growth target of 5% is intensifying.
Insights
[News] US Q2 GDP Growth Revised up to 3% as Initial Jobless Claims Slightly Declined
Summary:
- Q2 real GDP revised up to 3.0%
- Initial jobless claims last week fell by 2,000 to 231,000
- Continuing claims last week rose by 13,000 to 1,868,000
The U.S. initial jobless claims slightly declined last week, as reported by the Bureau of Labor Statistics on August 29. The Initial claims was 231,000, down by 2,000 from the revised figure of the previous week, outperforming market expectations of 232,000. The four-week moving average was 231,500, down by 4,750 from the previous week’s revised figure. Meanwhile, continuing claims increased by 13,000 to 1,868,000.
At the same time, the Bureau of Economic Analysis also released the second estimate for Q2 Real GDP, revising the annual growth rate up to 3.0%, an increase of 0.2% from the preliminary estimate. The core PCE inflation rate was revised down to 2.8%, a decrease of 0.1% from the preliminary estimate. Overall, the U.S. economy continues to demonstrate resilience, with inflation remaining on a downward trend.
During last week’s Jackson Hole Global Central Bank Symposium, the Federal Chairman Jerome Powell reiterated that the risks of rising inflation are continuing to diminish and that there is sufficient reason to believe inflation will return to 2%.
Meanwhile, the downside risks to the labor market are gradually increasing. Although the unemployment rate remains at a historically low level, it has risen back to 2023 levels. This increase is primarily due to higher labor supply and job vacancies rather than widespread layoffs. However, the Fed do not welcome any further cooling of the labor market.
Finally, Powell clearly stated that the time for policy adjustments has arrived. Although he did not reveal specific plans for rate cuts, insights can be gained from the September release of the Summary of Economic Projections (SEP), where adjustments to the dot plot will indicate the pace and magnitude of future rate cuts by the Fed. Currently, the market expects the Fed to cut rates by 3 to 4 quarter-points throughout 2024 (1 quarter-point in September, 1 to 2 quarter-points in November, and 1 quarter-point in December).
Insights
[News] U.S. Consumer Confidence Edges up in August Despite Labor Market Concerns
The U.S. Consumer Confidence Index slightly increased in August, reaching 103.3, as reported by the Conference Board on August 27. This marks a small rise of 1.4 from the previous month.
Both the Present Situation Index and the Expectations Index improved in August, indicating that consumers remain optimistic for business activity. However, recent increases in the unemployment rate have dampened consumer optimism regarding the labor market, leading to a more pessimistic outlook for future labor conditions.
While overall consumer confidence rose, confidence among those with incomes below $25K declined, whereas those with incomes above $100K showed the highest levels of confidence. This is consistent with the findings from the University of Michigan’s July consumer sentiment survey, which highlighted that lower-income individuals feel the impact of inflation more acutely, contributing to their decreased confidence in economic prospects.
Additionally, consumer expectations for the stock market have shifted, with more people now believing that stock prices will decline over the next year, likely reflecting concerns over the recent rise in unemployment. Interestingly, consumers have not altered their expectations regarding the likelihood of a potential economic recession.
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