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The Early Signs Of An Inflationary Recovery?
The Macro Institute's Weekly Economic Primer
The Macro Institute
September 02, 2025
It’s always a treat (at least for us macro nerds!) when we get both the national PMIs and the payroll report in the same week. While there are plenty of other data series to watch, investors this week will be laser-focused on the ISM and S&P PMIs, and Friday’s jobs numbers.
The chart above highlights three of these key inputs. It plots the average of the employment components from ISM Manufacturing and ISM Services against payrolls. History shows this PMI average leads payroll trends by about 6–9 months. Last month, that series hit a fresh cycle low, suggesting payrolls are unlikely to climb sustainably any time soon.
Watch for an inflection in the PMIs for an early signal that payrolls could finally turn the corner.
The Macro Week In Review
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The Macro Week Ahead
🚧 Early Signs Of An Inflationary Recovery?
Recent U.S. economic data continues to point toward stronger growth paired with elevated inflation. Regional PMI figures suggest a recovery from the tariff-driven slowdown in the first and second quarters of 2025, with most readings now sitting just above expansion thresholds. S&P Global’s preliminary U.S. Manufacturing PMI for August came in at 53.3, beating expectations and July’s 49.8 print. The New Orders component, at 54.5, underscored the strength of the beat. On Friday, the Atlanta Fed projected real GDP growth of 3.5% for Q3, with ~1.5% being driven by consumer spending and a tariff-related boost from net exports.
Inflation indicators remain firm. The Prices Paid components of regional PMIs are at or near new cycle highs. These typically lead the more conventional measures such as the Core PCE Index, which rose 2.9% in July.
The combination of accelerating growth and sticky inflation does not suggest that rate cuts are needed! Yet, markets are pricing in one rate cut by September and two by December. Chairman Powell, signaling his readiness to adjust policy two weeks ago, reinforced investor expectations of a rate-cutting cycle, helping to buoy equity markets.
📆 The Week Ahead
Powell’s dovish tone reflects his growing concern over the labor market, following weaker payroll growth and a slight uptick in unemployment. This week’s data will test that outlook.
Tuesday: ISM Manufacturing and its Employment component, both historically reliable leading indicators for payrolls. Current trends imply cyclical slowing in hiring.
Wednesday: JOLTS data on job openings, quits, and layoffs. Openings have softened from 2022 levels, but layoffs remain low. The quits rate is reaccelerating, which suggests workers are still confident in their ability to find new jobs.
Thursday: ADP and Challenger job cut reports. Last month, ADP’s Chief Economist Nela Richardson noted that hiring and pay trends remain broadly consistent with a healthy, consumer-driven economy.
Friday: Nonfarm Payrolls. July’s disappointing +73k print and a 10 bps rise in the unemployment rate to 4.2% drove expectations of Fed easing. The consensus for August is +75k jobs with unemployment inching up to 4.3%. A stronger print could weigh on equities as it reduces the odds of rate cuts, reinforcing a “good news is bad news” dynamic.
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