[Good Morning Stock Market] US August Economic Indicators Mostly Positive... "Employment Optimism Not Yet"

[Asia Economy Reporter Kum Boryeong] The U.S. economic indicators for August generally showed positive results. The August ISM Manufacturing Index continued its upward trend for the fourth consecutive month, and new orders significantly exceeded market expectations, which had predicted a decline compared to the previous month. Although some adjustments are inevitable in the short term, analyses suggest that the ongoing recovery trend in economic indicators and fundamentals will support the prices of risk assets. Alongside this, production and employment also showed an upward trend compared to the previous month, but there are opinions that optimism regarding employment is still premature.

◆ Jinmyung Kim, Researcher at Hanwha Investment & Securities = The U.S. August ISM Manufacturing Index, released on the 1st, recorded 56.0, surpassing expectations by 1.2 points and marking the fourth consecutive month of increase. New orders, which have high leading indicator characteristics, recorded 67.6, significantly exceeding the market expectation of 58.8, which had anticipated a decline from the previous month’s 61.5. The rise in new orders and order backlogs continues due to favorable external orders and low inventory levels. Production also rose by 1.2 points from the previous month to 63.3, and employment increased by 2.1 points to 46.4, strongly indicating that manufacturing production activities are normalizing in response to expanding demand.

The ISM Services Index, announced on the 3rd, recorded 56.9, falling short of both the expected 57.0 and the previous month’s 58.1. This reflects a slowdown in the pace of improvement in overall business activity, production, and new orders, which is attributed to factors such as the resurgence of COVID-19. Nevertheless, the overall index level still significantly exceeds the baseline, confirming that the recovery trend continues.

A common feature in both indices is the rise in prices. The ISM Manufacturing Index rose by 6.3 points to 59.5, and the Services Index increased by 6.6 points to 64.2 compared to the previous month. Price increases were reported across all manufacturing industries, and in the services sector, price rises were noted in all areas except information industries, retail sales, and other services. This clearly reflects the recently intensifying inflationary pressures within the U.S.

Overall, the August ISM indices confirm that both manufacturing and non-manufacturing sectors continue a very favorable recovery despite some policy factors and the resurgence of COVID-19. The still low inventory levels and rising price pressures strongly suggest a high possibility of corporate profit improvement.

Some adjustments appear inevitable during the process of returning to fundamentals. While short-term adjustments are unavoidable, the sustained recovery trend in economic indicators and fundamentals is expected to support the prices of risk assets.

◆ Heejin Kwon, Researcher at Korea Investment & Securities = The U.S. August employment data recorded a remarkable surprise. The unemployment rate dropped from 10.2% to 8.4%, significantly below the market expectation of 9.8%. Since 1948, this is only the second time that the unemployment rate has fallen by such a margin in one month, the first being a 2.2 percentage point drop in June. The Bureau of Labor Statistics (BLS) added that, considering possible errors in data collection, the actual unemployment rate might be about 0.7 percentage points higher than reported; even so, the August unemployment rate would be 9.1%, still significantly below expectations. Additionally, the average hourly wage in August rose by 0.4% compared to the previous month, surpassing market forecasts that anticipated wage levels to remain similar to the prior month.

At first glance, these headlines suggest an extraordinary employment surprise, but a closer look reveals both hopeful and discouraging aspects. First, the relatively steady recovery in service sector employment is positive. The service sector recovered 984,000 jobs in August. While job growth in sectors producing goods, such as construction and manufacturing, slowed significantly with minimal increases, the service sector?which accounts for about 80% of private sector employment?maintained a gradual improvement pace, leading the overall labor market recovery.

It is fortunate that the crucial service sector continues its recovery, but the increase in permanently laid-off unemployed individuals, transitioning into long-term unemployment, indicates that employment pressures remain subdued. While more than 60% of temporarily furloughed workers have steadily returned to work, the number of people who have permanently lost their jobs is also rising. Since the onset of the COVID-19 pandemic, the number of permanently laid-off unemployed has increased by an average of 350,000 per month, totaling 2.13 million more than in February. With many employers and businesses still unable to accommodate all temporarily furloughed workers, few are hiring new staff. Therefore, permanently laid-off unemployed individuals are likely to face difficulties finding new jobs, leading to long-term unemployment, making it premature to view the labor market optimistically at this time.

This content was produced with the assistance of AI translation services.