Insights
The U.S. non-farm payroll data for August is set to be released on September 6. Ahead of that, the ADP employment report, often referred to as the “mini-NFP,” was published on September 5. The report revealed that private-sector employment in the US rose by 99,000 jobs in August, significantly lower than the market expectation of 145,000, marking the lowest level since 2021 and signaling a further slowdown in the labor market. This has heightened speculations that the Federal Reserve might increase the scale of rate cuts.
The ISM Services PMI, which was released on the same day, presented a more optimistic picture. The August Services PMI came in at 51.5 (previously 51.4), slightly higher than the market expectation of 51.3, remaining in expansion territory for the second consecutive month.
Breaking down the sub-indices, the employment index fell to 50.2 (previously 51.1), in line with the ongoing labor market slowdown but still indicating growth. The new orders index rose to 53.0 (previously 52.4), and the supplier delivery time index increased to 49.6 (previously 47.6), reflecting continued strong demand for services. However, the business activity index dropped to 53.3 (previously 54.5), suggesting that high interest rates and costs are still exerting some negative pressure on business operations. Despite this, all indices remained in expansion, indicating that the overall services sector is still experiencing stable growth.
In the commentary from managers surveyed, industries with rising demand (such as finance, information, entertainment, and healthcare) reported continued improvement or strength in business activity. Conversely, sectors with declining demand (such as construction, utilities, and wholesale trade) cited high interest rates and cost pressures as factors weakening business activity. Some companies in these sectors are also conducting layoffs or reducing hiring. Overall, while the demand in the services sector is significantly stronger than in manufacturing, there are still signs of uneven recovery across industries.
Insights
Summary:
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
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.
Insights
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.
Insights
The U.S. Department of Labor released the unemployment insurance weekly claims report on August 22. Initial claims for unemployment benefits for the previous week were 232,000, an increase of 4,000 from the revised figure of the prior week. The four-week moving average was 236,000, a decrease of 750 from the revised figure of the previous week. The number of continuing claims for unemployment benefits rose by 4,000 to 1,863,000, nearing the highs last seen in November 2021.
Overall, the upward trend in initial unemployment claims has not yet changed. In the minutes of the July FOMC meeting, Federal Reserve officials clearly indicated that initial claims for unemployment benefits are a key indicator for monitoring the labor market (Regarding the outlook for the labor market, participants discussed various indicators of layoffs, including initial claims for unemployment benefits and measures of job separations.). Therefore, it remains crucial to closely monitor any significant changes in the trend of unemployment claims.