US indices little changed on Wednesday, and Asian markets retreated from 5-week highs on mixed US data. Markets and economies are often on opposite sides of the barricades. They sometimes welcome weaker data as it suggests ultra-soft policy remains in place, just like now. But sometimes, it is necessary to look at the situation through the eyes of an economist. With this approach, weak data is a negative, and yesterday was something to look at.
Worryingly, a weak ADP report showed that the private sector created only 374K jobs in August against an expected 640K. According to this metric, another 6 million people need to be hired to return to the February 2020 peak. So, it takes another 12 months at the average rate seen year to date (+480K monthly).
The ISM manufacturing index rose from 59.5 to 59.9, higher than expected. But within the index, the employment component fell below the waterline to 49, reflecting contraction. The slowdown in price growth is shown by a 6.3 point drop in the corresponding element. Such figures create room for the Fed to take its time with the unwinding of stimulus.
US car sales fell to an annual rate of 13.1M in August compared with 14.8M a month earlier and a peak of 18.5M in April this year. For the most part, it’s a matter of a shortage of some models due to chip supply issues, which is pulling up the average price of new cars by 16%. That said, we can see that the higher price is, as textbook, reducing demand.
Today it is worth keeping an eye on the weekly jobless claims data with heightened interest. The markets are waiting for a smooth improvement in the figures. A continuation of jobless claims at the current levels or an increase could increase fears for the US causing a sell-off in the dollar. If there is substantial progress like a month ago, it will bring back optimism about the jobs report and provide support for the dollar.