Last Friday, the US Bureau of Labor Statistics released its July jobs report. The results showed that the US unemployment rate in July rose to its highest level since October 2021 at 4.3%, worse than consensus.

This increase triggered the Sahm Rule recession indicator, which means the difference between the average unemployment rate over the past three months and the lowest rate in the past 12 months has reached 0.5 percentage points or more. Historically, this trigger has always indicated a 100% probability of a recession. This trigger caused a sharp decline in global capital markets, with the S&P 500 correcting by -5% in two days and the JCI by -3.4% last Monday. However, the JCI's rebound of 2.2% by Wednesday, August 7th, indicates that the correction from excessive fear provided a fairly good buying opportunity for equity investors.

In addition, market consensus has increased projections for The Fed to cut interest rates by 50 basis points or 0.5% at both the September and December meetings. A higher interest rate cut would certainly have a more positive impact on the growth of developing countries like Indonesia and global capital markets.

Our View:

We believe the increase in US unemployment is not due to high levels of layoffs, but rather to a surge in the labor supply from immigration. In addition, higher-than-expected US economic growth in the second quarter still reflects strong consumption. In our view, it is still too early to confirm a recession, especially if US economic growth data remains strong.

Furthermore, we believe that the US inflation data for July will provide a clearer indication of the Fed's next steps, especially with the hope of higher interest rate cuts to avoid a recession.

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