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[News] U.S. CPI Continued to Decline in September, Market Holds Steady on Rate Cut Expectations
The U.S. Consumer Price Index (CPI) continued to decline in September, according to data released by the U.S. Bureau of Labor Statistics on October 10. The year-over-year CPI growth rate was 2.4%, down 0.1% from the previous month. Although slightly above the market expectation of 2.3%, it remains the lowest level since February 2021. The month-over-month increase was 0.2%, unchanged from the previous month and slightly higher than the market forecast of 0.1%.
Core CPI rose by 3.3% year-over-year, marginally exceeding both the previous month’s figure and market expectations of 3.2%.
The monthly increase was primarily driven by rising prices in apparel, medical services, and transportation services. On a positive note, the rent and owners’ equivalent rent, which have been key factors slowing the CPI decline, showed signs of easing. On a year-over-year basis, rent inflation grew by 4.8% (down from 5.0% in the prior month), while owners’ equivalent rent increased by 5.2% (down from 5.4%), both continuing their gradual deceleration.
(Source: BLS, TrendForce)
Additionally, the Bureau of Labor Statistics reported the latest weekly jobless claims. Initial claims reached 258,000, an increase of 33,000 from the previous week, while continued claims rose to 1,861,000, up by 42,000 from the prior month. Despite the rise in claims, the numbers remain within a healthy range, indicating that the labor market is still in balance.
Following the release of this data, market expectations for Federal Reserve rate cuts remained unchanged, with projections for two cuts this year and four more in 2024.
Insights
[News] U.S. Exports Hit Record High in August, Trade Deficit Continues to Narrow
U.S. exports reached a new high, and the trade deficit continued to narrow in August, according to data released by the U.S. Bureau of Economic Analysis and the U.S. Census Bureau on October 8.
In August, U.S. exports totaled $271.8 billion, marking a year-over-year increase of 5.1% (up 2% month-over-month), reaching a record high. Goods exports rose 2.5% month-over-month to $179.4 billion, the highest level since September 2022, with most categories showing growth.
However, semiconductors and crude oil exports declined by $800 million and $1.1 billion, respectively. Service exports increased by 1% month-over-month to $92.3 billion.
Imports amounted to $342.2 billion, showing a year-over-year increase of 7.56% (up 0.9% month-over-month). Goods imports fell by 1.41% month-over-month to $274.3 billion, driven by a $1 billion reduction in crude oil imports due to falling oil prices in August, along with an $1.1 billion decrease in passenger vehicle imports.
Meanwhile, service imports rose by 1.1% to $67.9 billion, reaching a record high, primarily due to increased spending on travel and intellectual property.
The trade deficit narrowed to $70.4 billion, down 18.11% year-over-year (down 10.8% month-over-month), the smallest deficit in five months.
Although U.S. exports continue to reach new highs, some economists expect that U.S. export growth may not be sustainable, given ongoing economic instability in China and signs of weakening growth in the eurozone. In contrast, imports are expected to continue growing, supported by strong domestic consumption demand and the resolution of recent port strikes.
Overall, the market anticipates that Trade could exert pressure on U.S. GDP growth in 2025.
Insights
[News] Key Focus This Week – U.S. CPI and the Fed’s Outlook on the Labor Market and Economic Prospects
Last week, Chinese equities continued to reflect the positive effects of easing policies, with the CSI 300 Index surging nearly 9%.In contrast, the U.S. S&P 500 Index saw a modest increase of only 0.22% due to uneven gains across sectors. In the bond market, the yield on the 10-year and 2-year Treasury note rose as expectations for rate cuts receded, narrowing the 10-year to 2-year yield spread to approximately 5 basis points. Meanwhile, the U.S. dollar index climbed to around the 102 level.
Key Economic Data Review for Last Week:
China PMI: China’s manufacturing PMI for September stood at 49.8 (previous: 49.5), marking the fifth consecutive month of contraction. Among the sub-indices, only the production index returned to expansion territory, while the other indices remained in contraction, indicating that China’s overall manufacturing sector continues to face challenges. Meanwhile, the non-manufacturing PMI came in at 50 (previous: 50.3), ending a two-month rebound. All major indices declined in September, reflecting weak consumer demand, which remained subdued even after a brief summer boost.
U.S. ISM PMI: The U.S. manufacturing PMI for September was 47.2 (previous: 47.4), remaining in contraction for the sixth consecutive month. While the new orders index and production index improved slightly to 46.1 (previous: 44.6) and 49.8 (unchanged), they remained in contraction, reflecting restrictive financial conditions and uncertainty around the upcoming presidential election, which continued to dampen business investment. In contrast, the services PMI increased to 54.9 (previous: 51.5), reaching its highest level since February 2023. Key sub-indices, such as the business activity index and new orders index, rose to 59.9 (previous: 53.3) and 59.4 (previous: 53.0), respectively, marking the third consecutive month of expansion, with both indices showing gains of more than 6%, highlighting strong demand for U.S. services.
U.S. Employment Situation: The U.S. unemployment rate for September fell to 4.1%, better than the previous month and the market expectation of 4.2%. Nonfarm payrolls increased by 254,000 (previous: 159,000), significantly surpassing market expectations of 142,000. Employment growth in September was mainly driven by the leisure and hospitality sector, which added 78,000 jobs, and the education and healthcare sectors, which added 81,000 jobs. Additionally, initial jobless claims have shown a downward trend recently, indicating some improvement in the labor market slowdown.
Key Economic Data Review for This Week:
U.S. CPI (October 10): The annual growth rate of the August CPI was 2.5% (previous: 2.9%), with a monthly growth rate of 0.2% (unchanged). Core CPI, excluding food and energy, remained stable at an annual growth rate of 3.2% (unchanged), with a monthly growth of 0.3% (previous: 0.2%). Both CPI and core CPI growth rates were the lowest since February 2021. According to the Cleveland Fed, September’s CPI is expected to decrease to 2.25% (August: 2.56%), and core CPI is projected to fall to 3.11% (August: 3.21%).
FOMC Minutes from September Meeting (October 10): Recent data indicate that inflationary pressures have gradually eased, while the labor market shows no significant signs of deterioration. The focus of the minutes will be on the Federal Reserve’s outlook on the labor market and the economy following the recent 50-basis point rate cut.
University of Michigan Consumer Sentiment Index (October 11): The final reading of the University of Michigan’s consumer sentiment index for September was 70.1, up 2.2 points from August, marking a five-month high. The report highlighted growing consumer optimism about the future, with more consumers expecting a Harris victory in the upcoming election. Inflation expectations for one year ahead fell to 2.7% (previous: 2.8%), while the five-year inflation expectation edged up to 3.1% (previous: 3.0%). The market expects the consumer sentiment index to remain around the 70 level in October.
Insights
[News] U.S. Services PMI Hits Nearly Two-Year High in September as Consumer Demand Remains Strong
U.S. Services PMI (NMI) continued to expand in September, according to data released by the Institute for Supply Management (ISM) on October 3. The NMI rose from 51.5 in August to 54.9 in September, reaching its highest level since February 2023.
Breaking down the sub-indices, the Business Activity Index increased from 53.3 last month to 59.9, while the New Orders Index climbed from 53.0 to 59.4. Both indices have expanded for the third consecutive month, with gains exceeding 6%, driving the overall increase in the NMI and signaling that demand for U.S. services remains robust.
However, the Employment and Supplier Deliveries indices showed mixed performance. The Employment Index fell from 50.2 last month to 48.1, ending two consecutive months of expansion and returning to contraction territory. Surveyed firms reported difficulties in hiring new workers, resulting in slower employee growth, while job vacancies and layoffs remained largely unchanged, aligning with recent signs of a slowing labor market.
On the other hand, the Supplier Deliveries Index rose from 49.6 to 52.1, indicating that stronger business activity and rising orders have caused suppliers to slow their delivery times.
In other indices, the Prices Index rose from 57.3 last month to 59.4, reflecting strong demand, marking the 88th consecutive month of expansion. Meanwhile, the Inventories Index increased from 52.9 to 59.1, suggesting that businesses are stocking up in anticipation of the upcoming holiday season and in response to recent port labor strikes.
Overall, the September NMI data indicate that U.S. consumer demand remains strong. The report notes that the NMI corresponds to an annualized real GDP growth rate of 1.9%.
This contrasts sharply with the Manufacturing PMI data released the day before, which showed a reading of 47.2 for September, marking the sixth consecutive month of contraction. The gap between the two sectors’ PMI readings has widened to 7.7 points, the largest divergence since late 2019, underscoring the growing disparity in U.S. economic growth trends.
Insights
[News] Key Focus This Week: Monitoring for Signs of Deterioration in the U.S. Labor Market
Last week, the People’s Bank of China introduced significant easing measures targeting interest rates, the real estate market, and the stock market, leading to a nearly 16% rebound in the CSI 300 Index from its low. Meanwhile, although the S&P 500 had already priced in the Federal Reserve’s 50 basis point rate cut, it continued to hit record highs, buoyed by ongoing gains in tech stocks. In the bond market, the yield spread between the U.S. 10-year and 2-year Treasuries remained steady at around 20 basis points. The U.S. Dollar Index continued its downward trend, consolidating around 100.
Key Economic Data Review for Last Week:
U.S. PCE: The Personal Consumption Expenditures (PCE) index for August increased by 2.2% year-over-year (previously 2.5%) and 0.1% month-over-month (previously 0.2%). The decline in PCE growth was mainly due to falling goods prices, which saw a year-over-year decrease of -0.9% (previously -0.2%), while services prices remained steady with a year-over-year increase of 3.7%. Excluding food and energy, core PCE rose by 2.7% year-over-year, a slight increase from the previous month’s 2.6%.
China Industrial Enterprises Total Profits: China Industrial Enterprises Total Profits fell by 17.8% year-over-year in August, a sharper decline from July’s 4.1% drop, marking the largest decrease this year. High-tech manufacturing profits, the largest contributor, declined in August, with cumulative year-over-year growth for January to August standing at 10.9% (previously 12.8%). Additionally, profits in mining and consumer goods manufacturing continued to fall due to weak demand, further exacerbating the downward pressure on overall industrial profits.
Australia Monetary Policy: The Reserve Bank of Australia (RBA) kept interest rates unchanged in its September meeting. The meeting statement indicated that restrictive financial conditions are slowing the economy. While household consumption is expected to rebound in the second half, if the recovery pace falls short of expectations, economic output may remain weak, leading to further slack in the labor market. The RBA also noted that recent data has heightened inflationary risks, and inflation is now expected to return to the target range by the end of 2025 (previously mid-2025).
Key Data to Watch This Week:
China PMI (September 30): China’s August Manufacturing PMI was 49.1 (previously 49.5), marking the fourth consecutive month of contraction. Nearly all sub-indices declined in August, remaining in contraction territory. Given the still-weak domestic demand and the incomplete impact of monetary policies, the market expects the September PMI to hold steady around 49.5.
U.S. ISM PMI (October 1): The U.S. Manufacturing PMI for August was 47.2 (previously 47.4). New orders and production indices fell to 44.6 (previously 47.4) and 44.8 (previously 45.9), continuing to reflect the restrictive financial conditions and uncertainties surrounding the presidential election, which have dampened corporate investment. The market expects manufacturing to exhibit uneven recovery, with the September PMI to remain around 47.6.
U.S. ISM NMI (October 3): The Non-Manufacturing PMI (NMI) for August was 51.5 (previously 51.4). Despite declines in business activity and employment indices, all indices remained in expansionary territory, indicating overall healthy growth in the services sector. With the U.S. holiday season approaching, the market expects the September NMI to hold steady around 51.5, continuing a trend of moderate growth.
U.S. Employment Situation (October 4): The U.S. unemployment rate for August was 4.2% (previously 4.3%), remaining near historic lows, with nonfarm payrolls increasing by 142,000, within the safe range of 100,000 to 200,000. Additionally, recent initial jobless claims have stopped rising, indicating a slowdown in labor market weakening. Moving forward, it will be important to monitor whether the job market can maintain its current state without deteriorating following the Fed’s rate cuts. The market currently expects the September unemployment rate to stay at 4.2%, with nonfarm payrolls increasing by around 140,000.
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