US Economy Dodges Recession in Latest Macro Reports

Let's start by looking at the ADP employment data released today. When analyzing ADP, the key focus is on wage inflation, to see if wage increases are too rapid, which could hinder the Federal Reserve's rate cuts. However, with the Federal Reserve's rate cuts now essentially a done deal, the focus of this report analysis shifts to whether the economy will encounter problems and whether it will lead to faster rate cuts by the Fed.

The data shows that in August, the U.S. private sector added only 99,000 jobs, significantly below the expected 141,000 and last month's 111,000. In terms of wages, there was no change in the wage growth rate in August, with those who stayed in their jobs still at 4.8%, and those who switched jobs at 7.3%.

This is noteworthy. We know that the Federal Reserve is looking for a wage increase of around 3%, and anything above 3% poses a risk of driving up inflation, so we need to see if future reports will continue the trend of slowing wage growth. If ADP reflects a stable wage increase within this range, it will have a certain impact on the future magnitude and speed of the Federal Reserve's rate cuts.

Another important data point is the weekly initial jobless claims. The data shows that the number of initial claims is 227,000, lower than the expected 230,000 and last month's 232,000. The number of continuing jobless claims is 1.838 million, lower than the expected 1.868 million and last month's 1.86 million. Both reflect that the current labor market is still relatively stable.

The focus of this report is still on the labor market. Companies have become more cautious and are less willing to hire, but there has been no further increase in layoffs. This means that in August, the labor market continued the basic situation from before, which is a positive signal for Friday's big non-farm payroll report.

Also releasing an optimistic economic signal is today's ISM services PMI index. The index for August is 51.5, slightly higher than the expected 51.1 and last month's 51.4, remaining in the expansion range.

Overall, the economic picture presented by this report is that the economy is slowing down but not yet a cause for concern, which helps to alleviate the tension of the economy falling into a recession in the short term and is positive for the U.S. stock market in the short term. Future attention still needs to be paid to changes in demand and layoffs to see if there has been an improvement after the Federal Reserve's rate cuts.

After analyzing these economic reports, our understanding of the U.S. economic landscape is becoming clearer. If we summarize, it is that the U.S. is currently not in danger of recession, corporate layoffs have not significantly increased due to the economic slowdown, and prices and wages still have some upward pressure, which may limit the magnitude of future Federal Reserve rate cuts. Of course, all of this is predicated on tomorrow's non-farm payroll data not being a surprise. If tomorrow's non-farm report significantly changes the investment logic, then we will analyze it carefully at that time to see how to respond in terms of investment. For us investors, such an economic background means that we cannot have too high expectations for interest rate-sensitive investments.