CHINA PMIs

Manufacturing sector expands at fastest pace in sixmonths

The headline seasonally adjusted Purchasing Managers’ Index™ (PMI) rose to 51.2 in September, up from 50.5 in August. Posting above the 50.0 no-change threshold for a second successive month, the latest figure signalled that manufacturing sector conditions continued to improve. Moreover, the rate of improvement was the joint-quickest since November 2024, having matched that seen in March.

Central to the latest improvement in manufacturing sector conditions was faster growth in new orders. Better underlying demand conditions, promotional efforts and new product launches all supported the latest upturn in overall new business, with the rate of expansion the fastest since February. New export orders meanwhile increased for the first time since March, though the rate of growth was only slight. Rising inflows of new work underpinned the quickest rise in manufacturing production in three months.

In line with higher new orders and production, Chinese manufacturers lifted their purchasing activity in September. The rate of growth was the quickest seen since last November and solid. Subsequently, stocks of purchases also increased, while inventories of finished goods rose due to increased production and manufacturers’ efforts to rebuild stock levels.

Meanwhile, greater amounts of new business also contributed to a further accumulation of backlogged work in September. Notably, the rate of expansion was the quickest seen since May 2024. This led to some firms to raise headcounts, though overall staffing levels declined again as a number of manufacturers expressed concerns over costs.

Average input prices continued to increase at the end of the third quarter. This was despite an improvement in supply conditions, as highlighted by the first reduction in average lead times in seven months on the back of reports of increased product availability and better supplier communication. Panel members indicated that higher prices for metals and meat contributed to the upturn in overall expenses. The rate of input cost inflation was the highest in ten months, but remained below the series average.

In contrast to the trend seen for input costs, average selling prices declined slightly in September after stabilising in August. Strong competition among manufacturers led firms to largely absorb cost increases to support sales, according to anecdotal evidence. While exporters continued to raise their charges to reflect rising input costs, the rate of increase was only fractional in September.

Overall, sentiment regarding the one-year outlook for output across the Chinese manufacturing sector improved in September. Goods producers were the most upbeat since March amid hopes that business development efforts and supportive government policies would help to spur sales and boost production in the year ahead. The level of confidence was below the long-run average, however.

Services activity growth remains solid in September

The headline RatingDog China General Services Business Activity Index fell slightly from 53.0 in August to 52.9 in September. Posting above the 50.0 neutral mark, the latest reading indicated another expansion of services activity in China, thereby extending the current period of growth that began in January 2023. The rate of increase slowed for the first time in three months, but remained solid overall.

Better market conditions, new product launches and supportive government policies were cited as reasons for the expansion in new work in September. The rate at which new business rose was solid, albeit the least pronounced in three months. New export orders also expanded in September, driven by rising tourism activity. While modest, the pace at which exports rose was the most pronounced in seven months.

Despite the solid increases in new business and activity, job shedding persisted in September. Staffing levels declined at the fastest rate since April 2024 amid reports of both resignations and redundancies. Panel members often linked the latter to cost concerns, though reduced capacity pressures played a part as well. Notably, the latest survey signalled a notably slower and only marginal rise in the level of outstanding business.

On prices, average input costs increased for the seventh successive month in September and at a quicker pace compared to August. Service providers attributed the latest increase in costs to both higher wages and greater raw material prices. Rising cost pressures led companies to raise their output charges in September, following a reduction in August. However, rates of both input cost and output price inflation were only marginal.

Finally, business sentiment regarding the one-year outlook for activity remained positive across the service sector in September. Moreover, the level of confidence climbed to the highest since March. Companies often hoped that stronger market conditions and business expansion plans will support sales and activity growth in the year ahead.

The official manufacturing PMI rose to 49.8 in September from 49.4 in August

The subindex for factory production rose to 51.9 from 50.8 in August. New orders rose to 49.7 from 49.5, while new export orders improved to 47.8 from 47.2.

Unlike the official gauge, RatingDog’s PMI is based on about 650 respondents and focuses more on smaller, export-oriented firms. (…)

The official nonmanufacturing PMI, which covers service and construction, declined to 50.0 in September from 50.3 in August.

The services subindex fell to 50.1 in September from 50.5, while construction edged up to 49.3 from 49.1. (…)

@MacroMicroMe

Weak Japan Data Poses Headache for Central Bank Industrial production dropped 1.2% in August from the previous month, declining again after a fall in July

(…) Moody’s Analytics economist Stefan Angrick estimates that U.S. duties on Japanese exports will shave at least 0.5% off the nation’s gross domestic product.

“Japan can’t bank on domestic demand to make up for the deteriorating export outlook. Sticky inflation is still eating into wage gains, keeping consumer spending weak,” Angrick said.

Separate government data showed that retail sales slipped 1.1% in August from a year earlier, marking the first decline since February 2022. (…)

Tariffs, Uncertainty to Slow Asia’s Economic Growth, ADB Says Front-loading of exports to get ahead of U.S. tariffs boosted growth in Asia in the first six months of the year

Asia’s economies grew at a solid pace in the first half of the year, but that momentum will slow as tariffs take effect, the Asian Development Bank said as it cut growth forecasts for the region.

U.S. tariffs have settled at historically high rates and trade uncertainty remains at record levels, said Albert Park, chief economist at the Philippines-based multilateral bank.

“The impact is increasingly shaping the outlook for developing Asia and the Pacific,” he said in the bank’s September outlook released Tuesday.

Front-loading of exports to get ahead of U.S. tariffs boosted growth in Asia in the first six months of the year, with tech powerhouses like Taiwan and South Korea also cashing in on booming artificial-intelligence demand. But as U.S. policy reshapes global trade, the region will take an economic hit, even as fiscal and monetary policymakers move to cushion the impact.

ADB now sees gross domestic product growth for developing Asia—a grouping of 46 of its members including China, India and South Korea—at 4.8% this year. That is down from April’s 4.9% forecast and the 5.1% expansion recorded in 2024.

It expects growth to slow further to 4.5% next year, versus the 4.7% projected in April.

U.S. tariffs have hit developing Asia, especially China, harder than the rest of the world. Accounting for exemptions and sector-specific duties, the region now faces an average effective tariff rate 28.1 percentage points higher than those agreed through the World Trade Organization or free-trade agreements—well above the average excess tariff the U.S. imposes on imports from outside Asia, ADB said.

India faces the steepest tariff hikes in the region, prompting the bank to downgrade its growth outlook for fiscal 2025 to 6.5% from 6.7%.

South Korea too is vulnerable, particularly to the U.S.’s sector-specific levies, including on cars and auto parts, which account for about a third of its U.S.-bound shipments, the report said. ADB cut its 2025 growth forecast for South Korea to 0.8% from 1.5%.

Despite also being a major tariff target, China’s growth forecast was left at 4.7% for this year. Citing “cautious optimism” amid a prolonged property-sector slump and trade turmoil, the ADB said it expects targeted government policy to help offset headwinds and sustain domestic economic activity. (…)

Rise of ‘Accidental Landlords’ Is Bad News for Investors Who Bet Big on Rentals Problems in the for-sale housing market are starting to infect the rental business

Big corporate landlords have unwelcome new competition. Regular homeowners who can’t sell their properties are renting them out instead, and the growing number of “accidental landlords” is a headache for pros.

Rents in the top 20 U.S. markets for single-family homes are expected to rise 0.8% this year, according to John Burns Research & Consulting. That would be the slowest pace since 2011, when job losses caused by the global financial crisis made it hard to increase rent. (…)

As more homes are put up for sale, owners are finding that demand isn’t there at the prices they expected. Of the 3.06 million properties listed at the start of this summer, only 28% sold, based on data from housing analytics firm Parcl Labs. That leaves 1.96 million homes left on the market going into the fall, a fifth higher than this time last year.

Realistic sellers will cut the price. Others are either delisting their properties to wait for market conditions to improve, or becoming accidental landlords: 2.3% of the homes that were for sale this summer ultimately switched to rentals. The share is higher in certain Sunbelt cities where conversions to rentals topped 5%. (…)

Invitation Homes, one of the largest single-family housing landlords in the U.S., reported falling rents for new leases in several cities in Texas and Florida this year including Tampa, Orlando, Jacksonville and Dallas. These are some of the most oversupplied housing markets in the country. (…)

Invitation Homes and American Homes 4 Rent are still seeing healthy rent growth in the Midwest and parts of the West Coast. They are also charging their existing tenants more nationwide to offset falling rents for new move-ins. For example, Invitation Homes raised the rent 6.2% for in-place tenants in South Florida this year, while new residents got a 0.2% price cut. (…)

Meanwhile, the number of home transactions has fallen to levels not seen since the 1990s, and the “shadow inventory” of unsold homes is building in the rental market, along with delistings. (…)

CPI-Rent was up 3.5% YoY in August, in constant deceleration since its pandemic peak growth rate of 8.8% in April 2023. The monthly measure rose 0.34% in August, likely a statistical aberration considering that the Zillow Rent Index was unchanged (+0.03%) after +0.12% in July. Zillow is now up 2.4% YoY, slightly lower than the BLS All-Rent Index (+2.8%).

Services inflation could surprise on the downside finally.

Let’s hope so because this chart is scary:

(Apollo)

Not scary enough? From the real world as of Sept. 8:

Harvard University researchers are tracking the impact of tariffs on consumer prices using a novel integration of high-frequency retail pricing data, product-level country-of-origin information, and detailed tariff classifications.

By linking daily prices from major U.S. retailers to Harmonized System (HS) codes and import origins, we construct custom price indices that isolate the direct effects of tariff changes across product categories and trading partners. Our analysis reveals rapid pricing responses, though their magnitude remains modest relative to the announced tariff rates and varies by country of origin.

Both imported and domestic goods are affected, suggesting broader pricing and supply chain spillovers.

Figure 1 compares the price index of goods produced in the United States with those manufactured abroad,from October 1, 2024 to September 8, 2025. The vertical lines denote major tariff news or events. (…)

The 2025 tariffs first became binding on February 4, at a rate of 10% on Chinese goods, but had little immediate effect on retail prices.2 This changed on March 4—marked by the first dashed vertical line in the figure—when the U.S. imposed 25% tariffs on imports from Canada and Mexico, along with an additional 10% tariff on Chinese goods. Immediately afterward, the prices of imported goods increased by approximately 2 percentage points, while domestic goods prices rose by roughly half as much.

After “Liberation Day” on April 2, the rate of price growth for imported goods again accelerated, coinciding with the announcement of a baseline 10% tariff on goods from all countries. For Chinese goods, the tariff was raised to 125% on April 10 as trade tensions between the two countries escalated. Domestic goods prices also increased during this period, but at a significantly slower pace.

Prices responded again after May 12, when the US temporarily reduced the additional tariffs on Chinese goods to 10 percent for a 90-day period. Following the announcement, prices declined modestly across all goods, but the drop was short-lived. By early June, both imported and domestic goods appeared to return to their previous trends, before falling again toward the end of the month. Then, on July 7, trade tensions escalated as the US issued letters to several
countries announcing a new deadline for higher tariffs on August 1. Shortly thereafter, prices began to rise once more. (…)

Since early March, prices have increased by approximately 4 percent for imported goods and 2 percent for domestic goods.

(…) the price increases observed for domestic goods suggest that tariffs have broader effects beyond directly targeted imports. Many U.S.-made products rely on imported inputs—such as components, packaging, or raw materials—from tariffed countries.

Even when final assembly occurs domestically, firms may raise prices to reflect rising input costs. In addition, as tariffs make imported goods more expensive, firms may anticipate a shift in demand toward domestic substitutes. Expecting this substitution, they may increase prices on U.S.-made goods, especially in categories where domestic and foreign products are close substitutes

By Country of Origin

Trump Sets Lumber, Wood Tariffs in Bid to Boost US Industry

President Donald Trump ordered 10% tariffs on imports of softwood timber and lumber, as well as 25% levies on kitchen cabinets, vanities and upholstered wood products, marking his latest bid to use import taxes to shore up domestic manufacturing.

The tariffs are set to apply from Oct. 14, with some increases targeted to take effect Jan. 1, according to a proclamation signed Monday. They follow a Commerce Department investigation into imports of lumber, timber and derivative projects that was launched in March.

Yet home builders have warned they also could deter investments in new houses and renovations.

Canada stands to be hit hard by the order, as it’s by far the US’s largest wood supplier and it’s already subject to 35.2% duties meant to counter alleged subsidies and unfair pricing. And while Trump has claimed the US doesn’t need Canadian lumber, Canadian supplies make up about a fifth of the US market. (…)

“Our housing crisis is a bigger threat to national security than imported lumber or timber,” the National Association of Home Builders told the government earlier this year. With most lumber and timber imported from longtime allies such as Canada, Germany, Sweden and Brazil — and lumber itself a renewable resource that doesn’t play a major role in modern warfare — “the threat to national security comes from our nation’s housing crisis, not imported lumber.”

Even so, Trump was under pressure from some congressional Republicans to use tariffs on furniture, cabinets and other wood products to boost their home-state industries, with some encouraging levies as high as 100%. And Trump has signaled his sympathy for furniture makers in North Carolina — once part of an acclaimed southern US hub for the domestic industry — where manufacturers say they are increasingly competing against subsidized, foreign rivals. (…)

The home furnishings sector has already been in a recession for years, and tariffs targeting timber and wood “would put it on its knees,” Dovetail Furniture and Designs, a furniture retailer based in California, warned the Commerce Department earlier this year.

Furniture for America, a coalition of companies spearheaded by the American Home Furnishings Alliance, said new duties on wood products would shrink the US workforce, since American furniture companies are reliant on a complex global supply chain that’s evolved over a quarter century — and not easily replaced domestically.

“Tariffs cannot unravel and reverse the global trends that shaped the home furnishings industry over those two and a half decades,” the group said in comments filed with the Commerce Department. “Tariffs cannot reopen factories that no longer exist, bring back thousands of workers who retired or moved on to other industries, nor reverse the interests and inclinations of today’s younger workers, who are attracted to higher-paying trades and the burgeoning tech industry.”

But what do they know? Certainly not politics!

Here’s what Americans know:

The annual income needed to afford the median-priced home, assuming a 31% housing debt-to-income ratio and a 30-year mortgage with a 3.5% downpayment, reached $126,700 last year per a June analysis from the Joint Center for Housing Studies of Harvard University, up from less than $80,000 in 2021. 

Meanwhile, single family and apartment affordability now lag their respective historical averages in 99% of the 580 national regions surveyed by ATTOM, the property data firm relayed Friday. Housing related expenses consume 33.3% of the typical American wages, up from 32.2% at this time last year. (ADG)

There’s more from Bloomberg:

Trump posted on social media Monday that he would be “imposing substantial Tariffs on any Country that does not make its furniture in the United States.” It’s unclear how that would work; companies, not countries, manufacture furniture and the duties are charged on specific imports, not governments.

“Details to follow!!” the president wrote. Trump said he would act “in order to make North Carolina, which has completely lost its furniture business to China, and other Countries, GREAT again.”

In a separate post, Trump reiterated his threat to impose a 100% tariff “on any and all movies that are made outside of the United States.”

“Our movie making business has been stolen from the United States of America, by other Countries, just like stealing ‘candy from a baby.’ California, with its weak and incompetent Governor, has been particularly hard hit!” Trump posted, offering no further details. (…)

It’s not clear how such a tariff would work, nor how films would be valued for duty-collection purposes. Many films from Hollywood studios involve global production, shooting on multiple locations foreign and domestic and involving post-production work that could be done anywhere.

Details! Pfft!

• US opens tariff probes into medical equipment, robotics, industrial machinery

Anything else?

Yesterday, discussing recent consumer data, I raised the possibility that slowing labor income growth (black below) could pull spending growth down to the 4.5% range which, with inflation close to 3.0%, could slash spending growth by nearly half to the 1.5% range.

Apollo tracks daily data for debit card transactions. The trend in the 28-day sum through last week has indeed declined by 50%.

Polymarket Puts Government Shutdown Chances Above 80%

How Much Does a Shutdown Impact the Economy?

0.4%

That’s how much a 34-day partial government shutdown reduced annualized real economic growth in the first quarter of 2019, the Congressional Budget Office estimated.

A full shutdown could more closely mirror the effects of the 16-day 2013 funding lapse, which lowered annualized growth by as much as 0.6%, the Office of Management and Budget said.

Economists say the economy generally makes up for any lost growth once the government reopens.

But threats of mass federal layoffs could leave a more lasting mark by making furloughed employees nervous to spend and, potentially, reducing employment.

• What a US Government Shutdown Means for Markets

The dollar is likely to weaken further in a shutdown, if history is any guide. During the three most recent episodes — in 2013, early 2018 and late 2018 into 2019 — the Bloomberg Dollar Spot Index drifted lower both during the impasse and in the immediate aftermath. The 35-day closure from December 2018 delivered the most pronounced bout of dollar weakness, underlining how the impact worsens with duration. (…)

Over in the bond market, Citigroup is out with a note pointing out that prolonged government shutdowns have historically lifted prices for long-dated Treasuries.

The most notable was in 2018 — a work stoppage that stretched more than a month — when yields on 10-year notes tumbled nearly half a percentage point. Back then, rates began to move lower ahead of time as concern grew the shutdown would spark a recession. As it stands now, Treasuries are wrapping up September with a third straight quarter of gains.

As for equities, data from Truist Advisory Services shows that over the course of the last 20 government closures dating back to 1976, the S&P 500 barely moved.

Even extended government shutdowns seem to have little, if any, negative effect on stocks. The S&P 500 dropped 2.3% during the 16-day closure in 2013, while the US stocks gauge actually rallied over 10% during the 34-day shutdown from December 2018 to January 2019, according to data compiled by Bloomberg.

May Take More to Rain on This Consumers Parade

The household sector continues to demonstrate resilience through uncertainty. Overall consumer spending rose 0.4% in August on an inflation-adjusted basis. While strength in spending wasn’t concentrated in any one consumer segment, growth in discretionary purchases stands out to us.

Recreational goods (which includes anything from board games to recreational vehicles) jumped 3.3% in August, made more impressive following a 2% gain the month prior.

Clothing sales were also another bright spot, up 1.1% last month, marking the fourth straight monthly gain and ninth in eleven months in real inflation-adjusted terms. On the services side, the largest gains came from recreational services and transportation services.

Continued discretionary spending tells us that, even as household wallets have shifted this year in an effort to mitigate tariff-induced uncertainty, consumers haven’t gone into hiding and are still spending. That’s because they still broadly have the means to consume today.

Inflation is a challenge in that it’s become sticky, running above the Fed’s 2% annual target. Households are contending with the compounding nature of price increases since the pandemic, like the higher prices for necessities or non-discretionary purchases including groceries, electricity and housing. This may be crimping their ability to spend elsewhere, but it’s not halting it.

The normalization in gas prices with the average price of a gallon of gas running at a recent low in August (~$3.36) also could be providing some reprieve to budgets last month.

At the end of the day, most households are still enjoying steady income growth—personal income rose 0.4% last month. While the jobs market has softened, the still-low unemployment rate and small number of people filing for unemployment insurance suggests most of the population looking for work is still employed and thus clipping a paycheck. These dynamics are intertwined—a household sector in better shape than the data previously indicated also helps explain why firms aren’t letting go of workers even as hiring has slowed. The demand is still there. (…)

Real disposable income growth, a measure of household purchasing power, was revised up more than spending was. The personal saving rate came up as a result and was at 4.6% in August, suggesting a bit more financial cushion.

Today’s data suggest there is considerable upside risk to our estimate of Q3 spending and broader GDP growth. Our current forecast puts real personal consumption expenditures up at a 1.5% annualized clip in the third quarter. The August data along with the revisions suggests consumption could rise twice as fast in Q3. (…)

Goldman Sachs boosted its Q3 GDP tracking estimate by 0.2pp to +2.8% a.r., reflecting stronger consumer spending in August and a more favorable monthly path between Q2 and Q3 than previously assumed. Q3 domestic final sales estimate now stands at +1.9%.

Fifty years in this biz thought me to beware the consensus.

True, the American consumer has been a blessing to the economy amid incredible turmoil.

This in spite of very low, like 2008-09 lows, measures of consumer sentiment!

In September 2023, I wrote The Wealth Defect, showing that when inflation-adjusted household net worth rose rapidly above trend like in the late 1990s, the mid-2000s and recently, expenditures grew faster than income, i.e. the savings rate declined.

From a monetary policy perspective, the wealth effect is now a wealth defect: high interest rates have had little impact on a very wealthy, under leveraged, consumer looking to enjoy life AMAP (as much as possible) post pandemic.

Households’ real net worth strongly deviated from trend after the pandemic as equity and home prices meaningfully outpaced inflation. Real expenditures, generally in sync with real incomes, have increased 8.4% since 2022 far outpacing real labor income up 5.5%.

Real net worth, up 33% since 2019, is now 20% above trend. Even middle income Americans are enjoying the recent bounty.

At the end of June, 50.5% of US household financial assets were in equities. Previous peaks were 48.1% in 2021 and 45.2% in 2000.

Lower interest rates can only amplify this wealth effect through potentially higher equity and home prices.

But we are about to test this wealth effect more seriously.

So far this cycle, increasing wealth was supplemented by rising real disposable income (or vice-versa). But in just 4 months, from April to August, PCE inflation accelerated from 2.3% YoY to 2.7%. As a result, real disposable income has flattened. But Americans dipped into their savings and kept spending.

However, their spending pattern changed: spending on durable goods, the most discretionary and hitherto strongest category, has become very volatile and has been essentially flat since November 2024, no longer contributing to the rise in expenditures.

Time will tell how ominous that is but slowing labor income growth (black below) could pull spending growth down to the 4.5% range which, with inflation close to 3.0%, could slash spending growth by nearly half to the 1.5% range.

And just when the Fed is closing its eyes on inflation, pressures are mounting. Services inflation has stabilized above 3.5% (though core Services was up 4.1% a.r. in August) and goods inflation jumped from –1.2% one year ago to +0.9% in August, a sharp 2.1% swing, adding 0.5pp to total PCE inflation. Core PCE inflation is now 2.9% vs 2.6% in April.

Prices of goods are pushed upwards by tariffs and by increasing scarcity as imports are falling. The National Retail Federation expects import volumes down 3.4% in 2025, translating into the remaining four months of 2025 being down 15.7% YoY. Bookings for containers moving from China to the U.S. the first week of September were down 26% YoY.

“The downward turn will be due solely to tariffs and unfortunately, there is nothing at present that suggests it will be short-lived,” shipping expert John McCown said. “For a tangible metric that has consistently for decades grown above U.S GDP, most often at two, three or even more multiples of GDP, the unusual nature of an actual decline in inbound container volume into the U.S. cannot be overemphasized,” McCown states.

Demand vs supply. The coming holiday season will be an interesting test, and not only for the less wealthy, and often more indebted, segment of the population.

ADG tells us that “Newly minted Fed governor Stephen Miran continues to put his dovish bona fides on full display, declaring on CNBC Friday that “I don’t see any material inflation from tariffs”.

But, in the real world, there is inflation on materials:

Goods sector inflation ticked to a 1.49% year-over-year clip in August from zero this spring, the Bureau of Labor Statistics finds, with the three-month annualized pace accelerating to 2.77%.

As Bianco Research points out today, privately-compiled metrics paint an even starker picture: Data sifted by Truflation show a 1.98% rise in the price level since April 2 “Liberation Day,” equivalent to a 4.22% annualized rate. 

Then, too, price data from four major U.S. retailers show a 3.7% annual uptick in imported goods impacted by tariffs over the same period per research firm PriceStats, while products originating from China are tracking at a 5.1% annual rate of inflation. “This is a problem,” Bianco concludes. (ADG)

US Consumer Sentiment Falls to Four-Month Low on Income Worries

(…) Consumers expect prices to rise at an annual rate of 4.7% over the next year, data released Friday showed. That was down slightly from both the preliminary September reading and the prior month. They saw costs rising at an annual rate of 3.7% over the next five to 10 years, up from August.

“Consumers continue to express frustration over the persistence of high prices, with 44% spontaneously mentioning that high prices are eroding their personal finances, the highest reading in a year,” Joanne Hsu, director of the survey, said in a statement. (…)

While sentiment declined among most income groups, it held steady for those with larger holdings of stocks. (…)

Labor demand vs supply:

AI CORNER

Walmart CEO Issues Wake-Up Call: ‘AI Is Going to Change Literally Every Job’ Head count expected to stay flat over next three years, despite growth plans, as AI eliminates or transforms roles

Walmart executives aren’t sugarcoating the message: Artificial intelligence will wipe out jobs and reshape its workforce.

Now the country’s largest private employer is making plans to confront that reality.

“It’s very clear that AI is going to change literally every job,” Chief Executive Doug McMillon said this week in one of the most pointed assessments to date from a big-company CEO on AI’s likely impact on employment.

His remarks reflect a rapid shift from just months ago in how business leaders discuss the potential human cost of the technology. Companies including Ford, JPMorgan Chase and Amazon have bluntly predicted job losses associated with AI. Some have advised other employers to prepare their workforces for change.

Some jobs and tasks at the retail juggernaut will be eliminated, while others will be created, McMillon said this week at Walmart’s Bentonville headquarters during a workforce conference with executives from other companies. “Maybe there’s a job in the world that AI won’t change, but I haven’t thought of it.” (…)

Company leaders say they are tracking which job types decrease, increase and stay steady to gauge where additional training and preparation can help workers. (…)

For now, Walmart executives say the transformation means the size of its global workforce will stay roughly flat even as its revenue climbs. It plans to maintain its head count of around 2.1 million global workers over the next three years, but the mix of those jobs will change significantly, said Donna Morris, Walmart’s chief people officer. What the composition will look like remains murky.

“We’ve got to do our homework, and so we don’t have those answers,” Morris said.

Already Walmart has built chat bots, which it calls “agents,” for customers, suppliers and workers. It is also tracking an expanding share of its supply chain and product trends with AI. (…)

Some changes are already rippling across the workforce. In recent years Walmart has automated many of its warehouses with the help of AI-related technology, triggering some job cuts, executives said. Walmart is also looking to automate some back-of-store tasks.

New roles have been established, too. Walmart, for example, created an “agent builder” position last month—an employee who builds AI tools to help merchants. It expects to add people in areas like home delivery or in high-touch customer positions, such as its bakeries. The company has also added more in-store maintenance technicians and truck drivers in recent years.

Across the industry, the pace of change will be gradual, said McMillon. For example, customer service tasks in call centers and through online chat functions will become more AI dependent soon and other tasks not, McMillon said. (…)

Elsewhere in the corporate world, top executives are pushing their companies to wholeheartedly embrace AI—and quickly. Some have created internal “heat maps” to decipher which roles or tasks could be automated by AI. Others have pushed staffers to propose new projects. (…)

“AI is just starting to ripple through the job market,” said Ronnie Chatterji, OpenAI’s chief economist, at the Bentonville conference. “I think 18 to 36 months, you’re going to see a lot more impact.” Earlier this month, OpenAI unveiled a partnership with Walmart and other companies to design an AI-training certificate program.

The drumbeat of warnings about AI-related job cuts has increased in recent months. Accenture CEO Julie Sweet told investors Thursday that the firm is “exiting” employees who can’t be retrained for the AI age. Meanwhile, it will continue to hire people who are generative AI-fluent and retrain existing workers to serve clients in consulting and other divisions. “Artificial intelligence is going to replace literally half of all white-collar workers in the U.S.,” Ford Motor Chief Executive Jim Farley said this summer. (…)

Recall Amazon’s Andy Jassy last June saying that Amazon will reduce headcount “as we get efficiency gains from using AI. It’s hard to know exactly where this nets out over time, but in the next few years, we expect that this will reduce our total corporate workforce as we get efficiency gains from using AI.”

WMT + AMZN = 2.6M jobs in USA.

So far, layoffs have not increased and remain in line with pre-pandemic levels. The layoffs rate in IT is not abnormal.

Productivity saves the day:

Trump Is Adding More Tariffs. Will They Spur U.S. Production?

(…) Shearing and others say duties of 50% on kitchen cabinets, bathroom vanities and other similar products probably still aren’t high enough to bring production back to the U.S. because of the high cost of American labor, they say. (…)

Duties of 100% on patented drugs, whose production is more capital intensive, are in theory high enough to drive companies to produce here, they say. But many multinationals—from Johnson & Johnson to Pfizer and Merck—already have plants in the U.S. and therefore might qualify for exemptions. Many patented drugs also come from the European Union, which already struck a deal with the U.S. to cap duties on the bloc’s goods at 15%.

Meanwhile, the U.S. imports about 78% of its heavy trucks from Mexico and 15% from Canada. Goods from those two countries that can be shown to largely contain U.S. content are largely exempted from tariffs altogether, under a treaty made during the first Trump administration known as USMCA. So far, many imported cars and auto parts from Mexico and Canada appear to be exempt from the 25% because of USMCA. (However, steel and aluminum from those countries remain subject to 50% duties, a legacy of Trump’s earlier metal tariffs.) (…)

Trump’s tariffs don’t apply to generics [and] generics account for only 10% of drug spending, but make up 90% of U.S. drugs consumption by volume. (…)

Many patented drugs can’t be substituted with generics for example, so the cost of many tariffs in that sector will be borne heavily by American hospitals, insurers and patients. (…)

Domestic manufacturers that need raw materials are now facing higher prices on an array of parts, from metals to electronics, largely due to the effect of tariffs. Steel for example now costs $960 per ton in the U.S., compared with a world average of $440, according to the U.S. Commerce Department. For some goods, switching to domestic suppliers sometimes isn’t possible.

Manufacturing as a share of U.S. GDP has been on the decline for decades. But Ed Gresser, director for trade and global markets at the Progressive Policy Institute, said, “it may be accelerating now because you’re adding so many costs to making things in the U.S.”

This next item could be related to all of the above…

Panic-Inducing Rumors Went Viral Ahead of the French Revolution Researchers use the tools of epidemiology to trace how false tales spread from place to place, and provoked a revolt

For centuries, historians have debated whether the “Great Fear” panic in the early days of the French Revolution was driven by the mass hysteria of ignorant peasants or a rational response to the famine and economic conditions of the day.

To figure it out, Italian researchers applied modern-day tools of epidemiology to trace how the rumors that provoked the upheaval spread across France.

The findings, published in the journal Nature, could offer insights into how unrest erupts today—for example, the recent “Block Everything” protests occurring across France in opposition to public-spending cuts.

In the summer of 1789, French peasants formed militias to combat bandits rumored to be attacking towns and villages, destroying crops and terrorizing peasants. When the brigands, which were believed to be acting with the support of nobles, didn’t materialize, the peasants turned against castles to destroy land titles held by local lords. (…)

The rumors, they found, were more likely to affect towns and cities with more-educated populations, rather than small villages with less-educated residents, according to Stefano Zapperi, a physics professor at the University of Milan and an author on the study. In addition, regions with high wheat prices—and hence higher food prices—were more likely to be “infected.”

Although the rumors of bandit attacks were false, the Great Fear spread according to a logical pattern linked to the social and political conditions of the time, the study’s authors said.

“Cities or areas that had suffered most had more incentive to revolt, in this sense, because the conditions were harsher,” Zapperi said. (…)

The wave of unrest and the French Revolution ended the medieval landholding system of feudalism and changed the nation’s political system. The monarchy was removed.

“The Great Fear can also be seen as a reaction to perceived threats, especially to grain and property, rather than to real brigandage,” the authors wrote.

Geographical and physical proximity were important for the Great Fear to spread from town to town by horseback, the authors said.

Today, you don’t need a horse.

Social unrest and panic can be accelerated through social media, according to Brian Uzzi, professor of leadership at Northwestern University. He has studied mob psychology and how social unrest spreads in the U.S.

“Social media is considered a facilitator or a catalyst,” Uzzi said. “It spreads content, but it also spreads emotions, and emotions are contagious.”

This time around, income inequalities, shelter affordability, highly divisive politics and politicians, a weakening rule of law, low respect for institutions, exploding corporate profit margins post pandemic, etc….

This chart show how real wages used to be in reasonable sync with productivity until the pandemic. Since then, productivity jumped by 11% and profit margins exploded by 50%! Real wages: +5.3% over 5 years. Real GDP: +15%.

Immigration can also become a serious issue in the US. The white population, 61% of the total in 2020, is projected to decline to 44% by 2060, although recent politics might change that…

CFOs Report Increased Optimism as Uncertainty Fades

The outlook for the U.S. economy among financial decision-makers improved somewhat in the third quarter of 2025, as uncertainty declined. However, concerns about the impact of tariffs on prices and business performance continued to weigh on firms, according to the CFO Survey, a collaboration of Duke University’s Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta.

Uncertainty remains a top concern of financial decision-makers, but it dropped in importance from second highest in the second quarter to seventh in the third quarter. (…)

For the third consecutive quarter, tariffs and trade policy were the top concern among survey respondents, followed by monetary policy and inflation. The firms that cited tariffs as a top concern were notably more downbeat about the economy and their own firm. Specifically, these firms:

• Were less optimistic about the U.S. economy (59.9 for the tariff-concerned group versus 64.3 for those unconcerned)
• Projected lower real GDP growth for the year ahead (1.6 percent versus 2.0 percent)
• Had lower revenue and employment growth expectations for 2025
• Forecasted notably higher input cost growth in 2025 and 2026
• Expected higher price growth in 2025 and 2026

Overall, CFOs projected that tariffs would have a big impact on price growth: On average, price growth would be about 30 percent lower in 2025 and roughly 25 percent lower in 2026 without the addition of tariffs, indicating that firms expect to grapple with tariff-related price increases into 2026. Meanwhile, almost a quarter of firms continued to report that they will decrease capital spending in 2025 due to tariffs.

• What Do Tariff Concerns Mean for CFOs’ Outlooks?

When asked for the most pressing concerns facing their firms, nearly 40 percent of respondents to the Q2 CFO Survey cited tariffs or trade policy — compared to 30 percent last quarter. In both surveys, CFOs cited trade policy at least twice as often as any other concern. (…) This quarter, we analyze the expectations of tariff-affected firms (the 40 percent citing tariffs as a top concern) and compare them to non-tariff-affected firms (those that do not list tariffs as a top concern).

Economy-wide optimism for tariff-affected firms averaged 57.5 (versus 63.2 for those not affected), and own-firm optimism averaged 66.2 (versus 69.4). Similarly, while CFOs’ expectations for real GDP growth declined overall from last quarter, tariff-affected firms expect GDP to grow by 1.1 percent over the next four quarters, compared to 1.6 percent among non-affected firms. Affected firms also report a 26 percent chance of real GDP contraction (compared to a 20 percent chance among their peers). This suggests that firms’ economic outlooks vary notably depending on whether they are affected by tariffs.

CFOs whose firms are affected by tariffs also report starkly dimmer outlooks for their own firms. Compared to non-affected respondents, tariff-affected firms expect higher input cost growth (6.6 percent growth in unit costs in 2025 vs. 3.9 percent for non-tariff-affected firms) and higher growth in prices for their products and services (6.6 percent vs. 3.2 percent) in 2025.

CFOs of affected firms also anticipate growth in costs and prices to remain elevated through 2026. Meanwhile, they anticipate lower revenue growth (4.8 percent vs. 5.9 percent) and employment growth (1.5 percent vs. 3.3 percent) in 2025. These responses imply that tariff-affected firms expect real revenue growth to shrink in 2025, as expected price growth outpaces projected nominal revenue growth.

Around 62 percent of tariff-affected firms have or expect to pass associated cost increases on to their customers, versus 27 percent of non-affected firms. Firms passing through these costs expect to pass much of the price increases on to customers (the median expected pass-through was 100 percent).

Additionally, over 30 percent of tariff-affected firms have or expect to absorb some cost increases, move up purchases, and revise their 2025 business plans in response to trade developments. Meanwhile, nearly 40 percent of those not affected by tariffs indicate they would take none of the actions listed in response to trade developments, compared to only 7 percent of tariff-affected firms.

The Credit Market Is Humming—and That Has Wall Street On Edge Concerns mount that a frothy market is concealing signs of excess; sudden bankruptcies rattle investors

Investors are gobbling up corporate debt like it is going out of style—even though the rewards, by some measures, are lower than they have been in decades. The frothy mood has some on Wall Street worried that the market is priced for perfection and ripe for a fall. (…)

One concern is that lending to riskier borrowers has been growing for years, first through traditional bonds and loans, then in the form of private credit and the revival of complex asset-backed debt. The longer that credit boom lasts, the more likely it is that defaults will rise. Likewise, the higher the valuations of corporate bonds and loans, the more susceptible they become to selloffs. (…)

The overarching concern on Wall Street is that the exceptionally high valuations for corporate debt are concealing excesses in the market and insufficiently compensating investors for taking risks.

That is visible in the paltry additional yield, or spread, that investors are getting by holding investment-grade corporate bonds compared with ultrasafe U.S. Treasurys. That figure fell to 0.74 percentage point in September, its lowest level since 1998, according to ICE Data Indices. The spread for junk-rated bonds is about 2.75 percentage points, near the record low set in 2007. (…)

“There’s still a tremendous amount of cash that needs to be put to work,” said Dan Mead, head of Bank of America’s U.S. investment-grade syndicate desk.

Companies with investment-grade credit ratings sold $210 billion of bonds in the U.S. market this month, making it the busiest September on record, according to Dealogic. Sales of junk bonds have been roughly the same as last year, but they are often used to finance private-equity takeovers and there are signs that buyout activity is picking up. (…)

Some analysts see the greatest risk in private credit, a source of financing that barely existed a decade ago and is fast approaching $2 trillion. Much of the market consists of loans made directly by private fund managers such as Apollo Global Management and Blackstone, mostly to companies but also to individual consumers and real-estate investors.

An increasing number of companies that took out private credit loans, especially smaller enterprises, lack the cash to make interest payments on their debts. Instead they have started issuing the equivalent of IOUs to their creditors, replacing cash interest with “payment-in-kind,” or PIK, distributions.

About 11% of all loans by business-development companies, or BDCs—a growing category of private-credit funds—were receiving PIK interest income at the end of 2024, even before the threat of tariffs sowed uncertainty among U.S. companies, according to S&P Global Ratings.

More concerning, private credit defaults, which spiked during the pandemic but had started to subside since then, have been on the rise. Fitch’s privately monitored rating default rate hit 9.5% in July, before receding slightly.

• First Brands files for bankruptcy, threatening multibillion-dollar losses Collapse of US auto parts maker that borrowed billions in private markets has unnerved Wall Street

First Brands Group has filed for bankruptcy protection while disclosing more than $10bn in total liabilities, marking one of the most spectacular collapses in private debt markets in recent years.

The Ohio-based auto parts company filed for Chapter 11 protection in the Southern District of Texas late on Sunday, formalising the abrupt unravelling of a business that has borrowed billions of dollars in private markets and raised concerns over riskier lending on Wall Street. 

In its bankruptcy petition First Brands, which is owned by Malaysian-born businessman Patrick James, did not disclose specific liabilities but estimated they were in a category between $10bn and $50bn, while it put its assets at $1bn to $10bn.

Full details of its finances could take time to emerge given the chaotic nature of its descent into bankruptcy, which was fuelled by concerns over its use of off-balance sheet finance.

First Brands previously told lenders it had $5.9bn of long-term debt in March, against nearly $1bn of cash, but many creditors now fear there are billions of dollars more in opaque financing linked to its invoices and inventory. (…)

More supply/demand imbalances:

With global and domestic investors steadily raising allocations to equities, it’s only logical stocks go higher as JPM analysis shows global net equity supply has been zero-to-negative in recent years… It’s ECON 101 — hold supply steady and raise demand = price goes up (ceteris paribus).

Source:  @dailychartbook

Wait, wait, says Goldman Sachs:

• Growing investor risk appetite has also been reflected in the US IPO market. There have been 46 IPOs greater than $25 million YTD, totaling $24 billion. This represents an 18% increase in the number of IPOs vs. the same period in 2024 and puts 2025 on pace for the strongest year since 2021 (261), although still well below the historical average volume of issuance. The average IPO this year has returned 30% on its first day of trading, on track for one of the strongest years on record.

• The value of announced US M&A is up 29% year/year, with transactions skewed towards large deals. The number of announced M&A transactions has grown by 8% year/year, with the count of 566 deals YTD close to the 15-year average.

• We expect IPO and M&A activity will increase in 2026 alongside accelerating US economic growth, improving CEO confidence, and a rising equity market. Our IPO Issuance Barometer stands at 139 today, ranking in the 88th percentile since 2002, and we forecast a 15% increase in the number of completed US M&A deals in 2026.

BTW:

@MauiBoyMacro

Meanwhile,

(…) some pockets of the equity market have recently demonstrated greater signs of investor exuberance. For example, Bitcoin-sensitive equities and quantum computing stocks have risen by more than 40% and 60%, respectively, since the start of August. Similarly, a basket of liquid recent IPOs and a basket of stocks most popular among retail traders are each up 14%.

Taiwan Must Help US to Make Half its Chips, Commerce Chief Says

Washington is demanding Taiwan move investment and chip production to the US so half of American demand is manufactured locally, outlining a radical shift for the global semiconductor industry.

The US has held discussions about that with Taipei to reduce the risks of over-reliance, Commerce Secretary Howard Lutnick said in an interview with NewsNation. It was the only way to effectively counter Beijing’s threats to invade a self-ruled island it views as its own, Lutnick argued.

“That’s been the conversation we had with Taiwan, that you have to understand it’s vital for you to have us produce 50%,” he said. The US aims to get to “maybe 50% market share of producing the chip and the wafers — the semiconductors — we need for American consumption. That’s our objective,” Lutnick said during the interview.

US officials have for years warned about an over-dependence on Taiwan Semiconductor Manufacturing Co. and its giant ecosystem of suppliers, which together make and supply the vast majority of the world’s most advanced chips. (…)

But shifting capacity en masse will require not just enormous capital but also the large-scale migration of scores of suppliers and partners that together comprise TSMC’s production chain. (…)

• Xi Pushes Trump to Oppose Taiwan Independence in Major Shift

Chinese President Xi Jinping is renewing a push for the US to change a decades-old phrase describing its stance on Taiwan independence, a concession that would be a major diplomatic win for Beijing.

China has asked the Trump administration to officially declare that it “opposes” Taiwan independence, according to a person familiar with the matter, who asked not to be identified discussing private information.

The suggested wording is stronger than the Biden administration’s previous statement that US officials “do not support” the self-ruled island seeking formal independence, and would add to China’s campaign to isolate Taiwan on the world stage. The Wall Street Journal first reported the request. (…)

Any change in wording will fan concerns that Washington’s position on the self-ruled democracy, which Beijing considers a part of its territory, is becoming a trade war bargaining chip. In an abrupt policy reversal, Trump already put on the negotiating table some tech curbs imposed on China over national security concerns. (…)

The discussions come as President Donald Trump and Xi prepare for an expected meeting at an upcoming summit in South Korea, where they’ll continue to hash out the terms of a broader deal. As those negotiations drag on, Washington still hasn’t signed a trade deal with global chip hub Taiwan, despite at least four rounds of negotiations. (…)

Since President Richard Nixon broke formal ties with Taipei to establish relations with Beijing in the 1970s, the US has adopted a “one-China policy” that leaves Taiwan’s sovereignty undetermined. For decades, Washington has adopted “strategic ambiguity” over whether US forces would defend Taiwan against a Chinese attack. (…)

Unless and until its dependance on Taiwanese chips declines, the US cannot let China “own” Taiwan.

The world’s most innovative countries China joins the top ten

The World Intellectual Property Office (WIPO) uses 78 indicators to assemble its Global Innovation Index. They cover inputs (such as spending on research and development) and outputs (such as patents and high-tech exports). The index also tries to capture the strength of a country’s institutions, the sophistication of its markets and its progress in adopting technology, not just inventing it. Most of the data was collected in 2024, before President Donald Trump started his assault on science in America.

Many of WIPO’s indicators control for the size of a country’s economy and population. Spending on research and development, for example, is expressed not in raw dollar terms but as a percentage of GDP. The number of researchers is calculated per million members of the population. The top-ranked country this year, as it was last year, is tiny Switzerland. Sweden comes second and America third.

China’s entry into the top ten is all the more remarkable given its status as a middle-income economy. Countries with a similar GDP per person would be expected to rank in the 50s or 60s. Other countries that have outperformed their income levels include India, South Korea, Vietnam and Britain.

China also seems to be getting a satisfying amount of bang for its innovation buck. Its scores for outputs (patents, trademarks, exports and the like) are better than expected given its level of inputs (education, research spending and so on). This defies the conventional view that Chinese innovation is force-fed, reliant on huge amounts of money and manpower. The country was once described as a “fat tech dragon” that ingested vast amounts of resources while producing meagre creative sparks. The dragon now seems to be in better shape.