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US Economy Stays Resilient, China Data Underwhelms

Contributed by Jeff Cheah, Strategic Sales Manager


US Economy Remains Resilient | skip to SGD/CNY

Last week, we saw the employment report showed that the number of ADP employees in the United States, known as the "small non-agricultural industry", recorded 324,000 in June, far exceeding market expectations of 189,000. After the release of the ADP data, the probability of the Fed raising interest rates in September increased slightly, the probablity of raising interest rates by 25 bp to the range of 5.50%-5.75% is still less than 20%.

The report again showed that U.S. private payrolls rose more than expected in July, pointing to continued resilience in the labor market that could keep the economy from recession. Although the Fed has raised interest rates by 525 basis points since March 2022, the labor market is gradually slowing down.

Services-related industries dominated job creation this month as the economy continued its transition from a commodity-led economy in the early days of the COVID-19 pandemic. In addition, the report also pointed out that wages increased by 6.2% y/y, which is much higher than the long-term growth rate, but this is still the slowest growth rate since November 2021.

In terms of specific industries, the manufacturing industry performed the weakest. In July, the number of employed people in the manufacturing industry decreased by 36,000, which was the fifth consecutive month of layoffs. In June, it decreased by 42,000 people.

The service industry is still booming. In July, the number of jobs in the service industry increased by 303,000, of which the number of jobs in the leisure and hotel industry increased by 201,000. ADP said job growth remained strong in July, with leisure and hospitality again driving job growth. Manufacturing was weak, a rate-sensitive sector that has shed jobs for a fifth straight month.

There were 1.6 job vacancies for every unemployed person in June, little changed from May, the Labor Department reported on Tuesday. A survey last month showed consumers were very bullish about the labor market in July.

While hiring has slowly declined over the past year, many businesses, especially in the service sector, have continued to hire aggressively to keep up with consumer demand. Even as the economy reels from high-interest rates and shifting spending patterns, companies remain reluctant to lay off workers.

Meanwhile, last Friday data released by the U.S. Department of Labor showed that non-agricultural employment in the U.S. increased by 187,000 after seasonal adjustment in July, compared with market expectations of 200,000, the smallest increase since December 2020. The U.S. unemployment rate was recorded at 3.5% in July, compared with the 3.60% expected and 3.60% previously.

We expect the soft-to-moderate USD profile to play out eventually, as the Fed is near the end of the tightening cycle. The upside bias for USD is likely to be limited, given that the Fed and markets are looking for rate cuts into 2024 and 2025.


China’s PMI Rebounds But Still in Contraction Range

China's July PMI rose to 49.3[1], an increase of 0.3 percentage points from the previous month, and it has risen steadily for two consecutive months. Among the 21 industries surveyed, 10 are in the expansion range, an increase of 2 from the previous month. The outlook for the manufacturing sector continues to improve, even though it is still in the contraction range.



In terms of enterprise size, the PMI of large enterprises was 50.3, unchanged from the previous month; the PMI of medium-sized enterprises was 49.0, an increase of 0.1 percentage point from the previous month; the PMI of small enterprises was 47.4, an increase of 1.0 percentage point from the previous month.

Meanwhile, China’s July non-manufacturing PMI[1] was 51.5, lower than the previous value of 53.2, down 1.7 percentage points from the previous month. Among them, the construction industry’s PMI was 51.2, while the service industry’s PMI was 51.5.



The expansion of the service industry has slowed down, and the summer vacation consumption industry has become an important support for the service industry. The PMI of the service industry was 51.5, a decrease of 1.3 percentage points from the previous month. Driven by summer vacation consumption, residents’ leisure consumption and tourism travel have increased. The business activity index of railway transportation, air transportation, accommodation, catering, ecological protection and public facilities management, culture, sports and entertainment, and other industries are all at around 55.0, supporting the expansion of the service industry’s PMI.

On July 31, Li Chunlin, deputy director of the National Development and Reform Commission (NDRC), introduced the "Measures for Resuming and Expanding Consumption" at the State Council Policy Briefing on measures to restore and expand consumption held by the Information Office of the State Council. There are 20 measures, which focus on 6 aspects including stabilizing bulk consumption, expanding service consumption, promoting rural consumption, expanding new types of consumption, improving consumption facilities, and optimizing the consumption environment.

Among them, measures related to stabilizing large-scale consumption such as automobiles, real estate, and home improvement are placed at the forefront. Xu Xingfeng, director of the Department of Market Operation and Consumption Promotion of the Ministry of Commerce, pointed out during the briefing that automobiles accounted for 10% of consumption, making them the top of the "Four gems" in consumption.

At this juncture, we see the support of SGDCNY at 5.3317. Any strengthening of CNY is likely to be driven by green shoots in China’s macroeconomic data.



Source: weixin.qq.

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