Revisions Unveil a More Resilient Economy than First Reported

By any reckoning, today’s durable goods report for August is better than what we had expected or what was expected by the consensus. The durables report dropped simultaneously with revisions to second quarter GDP that put the annualized growth rate at a head-scratching 3.8%.

Much of the GDP revision comes from an improved assessment of consumer services spending. Even as a recent report on service-sector revenue suggested some upside, the newly reported 2.6% annualized growth rate of services consumption in Q2 blew past our expectations. Revisions to that line alone accounted for a 0.6 percentage point boost to headline growth.

The broader measure on underlying demand, real final sales to private domestic purchasers, is still trailing headline growth, but the revisions put this measure of ‘core’ GDP at 2.9%, up a full percentage point (previously 1.9%) from the prior estimate.

The revisions to GDP also do an excellent job of setting up the narrative for this morning’s durable goods report because of what is happening with business fixed investment. This component of GDP was boosted in Q1 by a pull-forward in demand for capital goods in anticipation of coming tariffs. The initial estimates for Q2 showed a major air pocket with overall BFI coming in at just 1.9%.

But that has twice been subsequently revised and as of today’s revisions, the final Q2 annualized growth rate for BFI is now 7.3%. The equipment and intellectual property spending lines both benefited from back-to-back upward revisions as well. In the case of intellectual property outlays it was dramatic; the first look put spending here at 6.4%. As of this morning, the growth rate is 15%. We have highlighted the compositional shift favoring this category of spending, so the development here is surprising only in its magnitude.

While resilient growth is somewhat hard to square with the rapidly slowing jobs market, it perhaps is best explained by the no hire, no fire dynamic playing out today. This morning’s swath of data also included the latest read on the number of people filing for unemployment insurance, which continued to run at a low and stable rate through the past two weeks for both first time and continuing claimants.

Ultimately the updated GDP figures suggest the U.S. economy was undeniably resilient in the first half of the year despite the on-again off-again approach to U.S. trade policy.

The monthly data also suggest growth continued to run at a decent clip into the third quarter. The durable goods shipments data suggests a slower but still positive pace of equipment investment in Q3. While core nondefense capital goods shipments (excluding aircraft) slipped 0.3% in August, this measure has trended higher on a year-ago basis.

The advance goods trade balance data also out this morning suggests net exports will be more of a neutral force on Q3 growth after the whipsaw effects in the first half of the year. Tomorrow’s personal income & spending report for August will be key in assessing near-term consumer momentum.

Tariff effects have been smaller and slower to materialize, and the consumer has time and time again flexed their resilience in times of uncertainty. The latest batch of data certainly inject a bit of optimism to our assessment of current conditions, but the economy is still facing headwinds.

Ed Yardeni:

Today’s revision to Q2’s real GDP growth rate, from 3.3% (saar) to 3.8%, confirms that the economy is in excellent shape (chart). Real consumer spending was revised up significantly from 1.6% to 2.5%.

The current quarter’s growth rate is tracking at 3.3%, according to the Atlanta Fed’s GDPNow tracking model.

The upward revision in real GDP and the downward revision in employment suggest that productivity growth will be revised higher. The Fed lowered the FFR last week to revive demand, which doesn’t need reviving given the strength of real GDP growth during Q2 and Q3. The weakness in the labor market is likely structural, with several factors depressing the supply of workers, and AI possibly weakening the demand for entry-level employees.

The Fed’s easing is unlikely to fix the structural problems plaguing the labor market. Demand for goods and services doesn’t need to be stimulated, but by doing so, the Fed risks boosting inflation and bond yields, and increasing the risk of financial instability, including a possible meltup in the stock market followed by a meltdown.

Apollo’s Torsten Slok:

The strength in GDP growth over the summer is inconsistent with the observed slowdown in employment growth over the same period. The economy cannot be on the brink of a recession with a weaker labor market, and at the same time accelerating with stronger GDP growth.

What is likely happening is that job growth is weaker because of AI implementation and lower immigration.

At the same time, the trade war shock is fading into the background, and the probability of a recession is falling.

Following the release of the GDP data, we have revised down the 12-month recession probability to 20%.

With GDP growth at 3.8% and inflation at 2.9% and rising, it is becoming more and more difficult to argue for additional Fed cuts.

Auto Industry Is Flashing a Warning Sign on U.S. Economy CarMax’s sales and profit plunged in the latest quarter, sending stock down 20%

The auto industry is flashing warning lights on the state of the U.S. economy. Automakers’ profits are getting squeezed by tariffs. A subprime auto lender recently collapsed, and some car retailers are warning that consumers are pulling back.

CarMax, the biggest seller of used cars, said Thursday that its sales and profit plunged in the latest quarter. The company’s results, which sent its stock tumbling 20%, is the latest in a series of unsettling developments in an industry under strain from President Trump’s tariffs and carmakers’ recalibration of expensive electrification strategies.

“The consumer has been distressed for a little while. I think there’s some angst,” CarMax Chief Executive Bill Nash told analysts on a call Thursday. Consumers with better credit profiles “seem to be sitting on the sidelines,” Nash said.

Ford said this week it was offering lower interest rates to buyers with the weakest acceptable credit histories as it tries to unload unsold F-150 pickups, its bestselling model. Honda said it was scrapping an electric Acura SUV after just one model year. Other brands are offering steep discounts on EVs to capture buyers before a federal tax credit expires next week.

Tricolor, a subprime auto lender and car dealer owner, abruptly filed for bankruptcy liquidation earlier this month amid government investigations and a bank partner’s allegations of fraud. The Dallas-based company offered auto financing to customers who lacked credit history or a Social Security number and operated 65 dealerships.

First Brands, a major auto-parts supplier behind products such as Fram oil filters and Anco windshield wipers, is preparing to file for bankruptcy protection, The Wall Street Journal reported. The closely held Michigan company has more than $6 billion in debt outstanding. (…)

CarMax, which operates about 250 dealerships nationwide, said it was hurt in part because some shoppers rushed to buy earlier in the year because of uncertainty about tariffs, reducing demand in the most recent quarter.

Profits at the company’s finance arm were also down, as the performance of loans originated in 2022 and 2023 deteriorated and the company increased its provision for losses. CarMax said it would cut $150 million from selling, general and administrative expenses.

U.S. new vehicle sales have remained fairly robust as consumers raced to buy electric vehicles while a tax credit of up to $7,500 is still in effect until the end of September. But that trend is masking weakness in the overall market.

EV sales are expected to surge 28% in September from a year earlier, while the much larger market of pure gasoline and hybrid vehicles is expected to contract 2.5%, research firm J.D. Power forecast on Thursday. (…)

Still the tariffs—especially on steel, aluminum, autos and auto parts—weigh on the industry’s value chain. Germany-based Bosch, the world’s largest auto supplier, said Thursday that it is cutting 13,000 jobs, or 3% of its workforce.

“Geopolitical developments and trade barriers such as tariffs lead to considerable uncertainty—and this is something that we, like all companies, have to deal with,” said Markus Heyn, a Bosch board member.

Axios has more on KMX:

• The company surprised investors with a 6.3% decline in comp sales of used vehicles in the recent quarter.
• Investors had been expecting a 0.7% increase, according to Bloomberg.
• Used-car values depreciated rapidly this summer as competitors were “aggressive” on pricing, CarMax CEO Bill Nash warned today.
• CarMax saw values slip by $1,000 per vehicle in a one-month period during the quarter, leaving the company with elevated prices that scared customers away.

• But during the latest quarter, CarMax’s average selling price fell $250 year over year to $26,000.
• Customers are seeking out “older, higher mileage vehicles,” Nash said.
• Cox Automotive is still projecting an average increase in prices of new and used vehicles of 4%–8% due to tariffs.

China’s BYD Logged Sales Surge in Europe Last Month EU registrations for Tesla slumped nearly 37% in August

(…) SAIC Motor, the Chinese state-owned automaker, also logged robust sales growth. August new-car registrations for its models jumped 59% to 12,822 vehicles in the EU, according to ACEA.

The figures show that BYD and SAIC Motor continue to gain market share in the continent, where Chinese carmakers have been expanding aggressively thanks to their relatively cheap and varied lineups of electric vehicles, while some European rivals struggle to convince customers to transition to EVs. (…)

ACEA started including BYD in its monthly data when it revealed that the company had sold more cars in Europe than Tesla in July. EU registrations for Elon Musk’s electric-vehicle maker slumped nearly 37% in August to 8,220 vehicles, according to the data, extending a streak of disappointing monthly sales this year. (…)

The August slump in Tesla EU sales came even as the EV market in the bloc improved overall. Sales of battery-electric vehicles increased 30% on year, with 46% growth in Germany. Registrations of hybrid-electric cars rose 14%, while plug-in-hybrid models grew 54.5%.

ACEA said EU passenger-car registrations overall grew 5.3% in August to 677,786 vehicles. Sales were up 5% in Germany and 2.2% in France, but down 2.7% in Italy. Germany’s Volkswagen Group recorded sales growth of 6.3%. Stellantis, the owner of the Jeep and Dodge brands, logged 3.4% growth in registrations.

China Tightens EV Export Rules With Permits Required From 2026

China’s automakers will need permits to export electric vehicles from next year, adding to signs officials are tightening their management of the world’s biggest car market.

Export licenses will be required from Jan. 1 and are designed to promote the “healthy development” of the EV industry, the Ministry of Commerce said in a statement Friday. The move brings the sector in line with other types of cars, as well as motorbikes, which require permits.

Beijing has tightened its grip on China’s auto market this year after a bruising price war pushed some manufacturers to the brink, raising concerns among officials about the industry’s longer-term health. So far, there’s been a crackdown on the aggressive discounting that’s been a feature of the sector for years and an order for carmakers to speed up their payments to suppliers. (…)

In the first seven months of this year, carmakers such as Nio Inc., BYD Co. and Xpeng Inc. exported more than $19 billion worth of electric-powered vehicles, about the same as in the same period last year, with Europe the top market despite the EU tariffs.

Trump to Impose New Tariffs on Pharma, Big Trucks Levies on drugs will hit companies that aren’t building plants in U.S.

“Starting October 1st, 2025, we will be imposing a 100% Tariff on any branded or patented Pharmaceutical Product, unless a Company IS BUILDING their Pharmaceutical Manufacturing Plant in America,” Trump posted on his social-media site, Truth Social, without providing details.

Many of the largest pharmaceutical companies have announced new construction in the U.S. in recent months including Eli Lilly, AstraZeneca, Roche Holding and GSK. So far this year, more than a dozen drugmakers have pledged to spend more than $350 billion collectively by the end of this decade on manufacturing, research and development, and other functions in the U.S., The Wall Street Journal has reported.

Other tariffs Trump announced Thursday include levies on large trucks and home goods. All of them will begin Oct. 1, he said.

Roughly nine out of 10 prescriptions in the U.S. are filled with generic drugs, which wouldn’t be affected by a tariff on “branded or patented” products, as Trump outlined. This summer the Trump administration placed a 15% tariff on most pharmaceuticals coming from the European Union.

Pharmaceutical companies have been fearful of tariffs because many have manufacturing plants in Europe and other regions outside the U.S. (…)

Heavy trucks brought from outside the U.S. will be hit with a 25% tariff, Trump said, adding that it was “to protect our Great Heavy Truck Manufacturers from unfair outside competition.”

Commercial truck manufacturers rely on plants in Mexico to produce heavy-duty trucks for the U.S. market. Germany’s Daimler Truck North America unit assembles some Freightliner-brand trucks in Mexico. Freightliner is the North America market leader in heavy-duty trucks, with about a 40% share of the market. Germany’s Traton Group produces International-brand heavy-duty trucks in Mexico.

“There will be more upward price pressure from tariffs, especially on the ones manufactured in Mexico,” said Kenny Vieth, a truck-market analyst in Indiana.

Kitchen cabinets, bathroom vanities and other similar products will get a 50% tariff, Trump said. A 30% tariff will be imposed on upholstered furniture.

“The reason for this is the large-scale “FLOODING” of these products into the United States by other outside Countries,” Trump wrote. “It is a very unfair practice, but we must protect, for National Security and other reasons, our Manufacturing process.” (…)

The Supreme Court agreed this month to hear arguments in November on the Trump administration’s bid to save its sweeping global tariffs, setting the stage for a final ruling on a cornerstone of the president’s economic agenda. The tariffs, which were dealt a string of defeats in the lower courts, are set to remain in place until the case is decided.

• Trump Says Tariff Revenue Will Fund Relief for US Farmers

President Donald Trump said his administration will use funds collected from tariffs to assist beleaguered US farmers, previewing an impending bailout for an agriculture sector hit hard by his trade policies.

“We’re going to take some of that tariff money that we’ve made, we’re going to give it to our farmers, who are — for a little while — going to be hurt until it kicks in, the tariffs kick in to their benefit,” Trump said Thursday at the White House.

American farming communities, which largely voted for Trump in 2024, have experienced economic pain during his second term, as export markets for crops have dried up in the wake of the president’s trade wars and federal safety-net programs have shrunk. That has created a potential political vulnerability for the president’s fellow Republicans heading into next year’s midterm elections. (…)

“Farmers VERY upset abt Argentina selling soybeans to China right after USA bail out,” Grassley said on social media<?XML:NAMESPACE PREFIX = “[default] http://www.w3.org/2000/svg” NS = “http://www.w3.org/2000/svg” /> Thursday referencing the US readying a financial lifeline for Buenos Aires. “Still ZERO USA soybeans sold to China Meanwhile China is still hitting USA w 20% retaliatory tariff NEED CHINA TRADE DEAL NOW farmers need markets 2boost farm economy.”

China — the world’s largest soybean importer — has yet to book a single shipment of the US oilseed this season, fueling anxiety among farmers as this year’s harvest moves ahead. Producers are also grappling with Beijing’s retaliatory tariffs on US goods. (…)

Using tariff revenue for farm aid could prove risky. The president’s sweeping duties imposed using emergency powers have been ruled illegal by lower courts, and if the Supreme Court affirms those decisions, the US government could have to pay back tens of billions of dollars in refunds. (…)

Spending on AI Is at Epic Levels. Will It Ever Pay Off? Tech companies pour hundreds of billions into data centers, taking on heavy debt, but current revenue is relatively tiny; echoes of dot-com bubble

(…) AI proponents liken the effort to the Industrial Revolution.

A big problem: No one is sure how they will get their investment back—or when.

The building rush is effectively a mega-speculative bet that the technology will rapidly improve, transform the economy and start producing steady profits. “I hope we don’t take 50 years,” Microsoft CEO Satya Nadella said at a May conference with Meta CEO Mark Zuckerberg, referring to the initially slow adoption of electricity.

“Yeah, well, we’re all investing as if it’s not going to take 50 years,” replied Zuckerberg, who surmised at a recent White House dinner the company’s U.S. spending through 2028 was “probably going to be something like” $600 billion.

Silicon Valley watchers worry that enthusiasm for AI has turned into a bubble that has increasingly loud echoes of the mania around the internet’s infrastructure build-out in the late 1990s.

Then, telecom companies spent over $100 billion blanketing the country with fiber optic cables on the belief that the internet’s growth would be so explosive, most any investment was justified. The result was a massive overbuilding that made telecom the hardest hit sector in the dot-com bust. Industry giants toppled like dominoes, including Global Crossing, WorldCom and 360Networks. (…)

Company executives this week laid out plans that would require at least $1 trillion in data-center investment, and Altman recently committed the company to pay Oracle an average of around $60 billion a year for servers in data centers in coming years. Yet OpenAI is on track to take in just $13 billion in revenue from all its paying customers this year. (…)

Today’s numbers are far larger than the dot-com bubble, implying a massive shift in the economy would be needed to make these investments worthwhile.

David Cahn, a partner at venture-capital firm Sequoia, estimates that the money invested in AI infrastructure in 2023 and 2024 alone requires consumers and companies to buy roughly $800 billion in AI products over the life of these chips and data centers to produce a good investment return. Analysts believe most AI processors have a useful life of between three and five years.

This week, consultants at Bain & Co. estimated the wave of AI infrastructure spending will require $2 trillion in annual AI revenue by 2030. By comparison, that is more than the combined 2024 revenue of Amazon, Apple, Alphabet, Microsoft, Meta and Nvidia, and more than five times the size of the entire global subscription software market.

Morgan Stanley estimates that last year there was around $45 billion of revenue for AI products. The sector makes money from a combination of subscription fees for chatbots such as ChatGPT and money paid to use these companies’ data centers.

How the tech sector will cover the gap is “the trillion dollar question,” said Mark Moerdler, an analyst at Bernstein.

Consumers have been quick to use AI, but most are using free versions, Moerdler said. Businesses have been slow to shell out for AI beyond the roughly $30 a month per user for Microsoft’s Copilot or similar products. “Someone’s got to make money off this,” he said. (…)

AI boosters insist that this boom is different from the dot-com era.

Today’s tech giants produce far more cash than the fiber builders in the 1990s. And AI is immediately available for use by much of the planet, unlike the internet, which required consumers and businesses to get wired for high-speed access.

OpenAI counts roughly 700 million people—9% of the world’s population—as weekly users of ChatGPT as of August, up from 500 million in March, while its revenue is on track to triple over 2024.

If AI continues to advance to the point where it can replace a large swath of white collar jobs, the savings will be more than enough to pay back the investment, backers argue. AI executives predict the technology could add 10% to global GDP in coming years. (…)

The financing behind the AI build-out is complex. Debt is layered on at nearly every level.  (…)

If the wave of building proves far more than needed, or if tech companies pivot away from third-party providers, the risk is that CoreWeave’s data centers could end up like the dormant fiber optic cables that snaked through the U.S. in the 2000s. (…)

History is replete with technology bubbles that pop. Optimism over an invention—canals, electricity, railroads—prompts an investor stampede premised on explosive growth. Overbuilding follows, and investors eat giant losses, even when a new technology permeates the economy.

The U.K.’s 19th-century railway mania was so large that over 7% of the country’s GDP went toward blanketing the country with rail. Between 1840 and 1852, the railway system nearly quintupled to 7,300 miles of track, but it only produced one-fourth of the revenue builders expected, according to Andrew Odlyzko, an emeritus University of Minnesota mathematics professor who studies bubbles.

He calls the unbridled optimism in manias “collective hallucinations,” where investors, society and the press follow herd mentality and stop seeing risks.

He knows from firsthand experience as a researcher at Bell Labs in the 1990s. Then, telecom giants and upstarts raced to speculatively plunge tens of millions of miles of fiber cables into the ground, spending the equivalent of around 1% of U.S. GDP over half a decade.

Backers compared the effort to the highway system, to the advent of electricity and to discovering oil. The prevailing belief at the time, he said, was that internet use was doubling every 100 days. But in reality, for most of the 1990s boom, traffic doubled every year, Odlyzko found.

The force of the mania led executives across the industry to focus on hype more than unfavorable news and statistics, pouring money into fiber until the bubble burst.

“There was a strong element of self interest,” as companies and executives all stood to benefit financially as long as the boom continued, Odlyzko said. “Cautionary signs are disregarded.”

Kevin O’Hara, a co-founder of upstart fiber builder Level 3, said banks and stock investors were throwing money at the company, and executives believed demand would rocket upward for years. Despite worrying signs, executives focused on the promise of more traffic from uses like video streaming and games.

“It was an absolute gold rush,” he said. “We were spending about $110 million a week” building out the network.

When reality caught up, Level 3’s stock dropped 95%, while giants of the sector went bust. Much of the fiber sat unused for over a decade. Ultimately, the growth of video streaming and other uses in the early 2010s helped soak up much of the oversupply. (…)

Each new AI model—ChatGPT-4, ChatGPT-5—costs significantly more than the last to train and release to the world, often three to five times the cost of the previous, say AI executives. That means the payback has to be even higher to justify the spending.

Another hurdle: The chips in the data centers won’t be useful forever. Unlike the dot-com boom’s fiber cables, the latest AI chips rapidly depreciate in value as technology improves, much like an older model car.

“This is bigger than all the other tech bubbles put together,” said Roger McNamee, co-founder of tech investor Silver Lake Partners, who has been critical of some tech giants. “This industry can be as successful as the most successful tech products ever introduced and still not justify the current levels of investment.” (…)

For now, everybody is chipping in, letting the chips fall where they may, all hoping to eventually cash in their chips.

Incredibly, the article is totally US centric, omitting what’s going on elsewhere in the world, particularly in China. Recall how DeepSeek shocked the world with its performing low cost LLM last January. Agents are the new thing.

These 3 tables compare Chinese AI agents to the best (State Of The Art), all Americans, as of Sept 2025 on deep research, video generation and Graphical User Interface. The performances of Chinese agents match the best with significantly lower cost/model size, are all open source and free compared to the US closed models sold for $200/month subscriptions.

Chinese AI products are challenging the US business models supporting these huge investments. The money will be in the applications, not in the models… When the chips are down, low cost, open models will produce the best and cheapest apps. Better not put all your chips in one basket.

• David Einhorn Sounds Warning on the AI Spending Splurge

Hedge fund manager David Einhorn cautioned that the unprecedented amount of spending on artificial intelligence infrastructure may destroy vast amounts of capital, even if the technology itself proves transformative.

The Greenlight Capital founder said the trillion-dollar build-out by companies overall, such as Apple Inc., Meta Platforms Inc. and OpenAI is so extreme that the eventual returns are highly uncertain. While he expects AI will ultimately surpass today’s bullish forecasts, he questioned whether “spending a trillion dollars a year or 500 billion a year” will deliver good outcomes for the firms making those investments. (…)

“I’m sure it’s not zero, but there’s a reasonable chance that a tremendous amount of capital destruction is going to come through this cycle.” (…)

Einhorn drew a sharp line between the long-term importance of AI and the immediate economics of funding it. He said many projects will be built, but investors may not see the payoffs they anticipate.

Amazon Reaches $2.5 Billion Settlement Over Allegations It Misled Prime Users Agreement requires the e-commerce giant to give money back to customers and change its subscription practices

Amazon agreed to pay $2.5 billion to settle Federal Trade Commission allegations that it duped customers into signing up for its signature Prime service and made it very difficult for them to cancel.

The e-commerce giant will pay a $1 billion civil penalty, the largest in FTC history, and create a $1.5 billion fund to pay back to consumers, according to court documents. It will also be required on its Prime interface to include a simple way to cancel. (…)

Consumers who used three or fewer Prime benefits during any 12-month period from June 2019 to June 2025 are automatically eligible for a $51 payment, according to the settlement. People who used Prime benefits fewer than 10 times in that time frame will be eligible to receive the same amount through a claims process.  (…)

“The evidence showed that Amazon used sophisticated subscription traps designed to manipulate consumers into enrolling in Prime, and then made it exceedingly hard for consumers to end their subscription,” FTC Chairman Andrew Ferguson said. (…)

Amazon separately faces a major antitrust lawsuit filed by the FTC. Prime also plays a role in that case.

The FTC alleges in that litigation that Amazon had compelled sellers to use the company’s logistics service if they wanted their goods to be eligible for Amazon Prime shipping. The lawsuit also alleged that Amazon used anti-discounting tactics that punished merchants for offering lower prices elsewhere. Amazon denies the commission’s claims.

The antitrust case is set to go to trial in February 2027.

CONSUMER WATCH

From the Bank of America Institute yesterday:

Consumer spending growth has built momentum over the last few months, with three back-to-back monthly increases in seasonally adjusted credit and debit card spending, according to Bank of America aggregated card data.
Looking across US Census Bureau regions, we see a pickup in spending growth throughout the country.

• Tariffs torching U.S. container imports: Analyst

Containerized imports through American ports are set to take an historic plunge in September, an analyst predicts, as President Donald Trump’s China tariffs take a toll on the busiest trans-Pacific trade route. (…)

McCown said that without the spike from frontloading, the U.S. would have seen a drop in y/y volume in July “at least as high as the Far East’s positive number.” [+6.3%] (…)

He quoted a revised forecast by the National Retail Federation that shows import volumes falling 3.4% for the year.

“That translates into the remaining four months of 2025 being down 15.7% compared to the same four months in 2024,” said McCown.

The Port of Los Angeles expects inbound volumes to fall 10% in September y/y; McCown agrees that the busiest U.S. container port will see a double-digit decline for the month. (…)

Moreover, bookings for containers moving from China to the U.S. the first week of September were down 26% from the same week a year ago. Backhaul moves westbound to China were off by 18% despite the latest tariff pause. (…)

A year-on-year decline in inbound volume is a rarity in the more than six decades of container shipping, McCown noted, matched only by drops during the 2009 financial crisis and the pandemic, which were short-lived. Imports have reliably grown at a rate two, three or more times that of of the GDP. “The downward turn will be due solely to tariffs and unfortunately, there is nothing at present that suggests it will be short-lived,” McCown said.

The Big Three West Coast Ports reported combined containerized import growth of -7.0% MoM in August, below historical August seasonality of +1% MoM which comes after above-seasonal performances in June and July. (GS)

Strong consumer demand vs declining supply?

US New-Home Sales Unexpectedly Jump Over 20% in Broad Advance

New-home sales in the US unexpectedly surged in August to the fastest pace since early 2022, likely lifted by builders’ rampant price cuts and sales incentives.

Sales of new single-family homes increased 20.5% to a 800,000 annualized rate in a broad advance, according to a government report issued Wednesday. (…)

The data suggest US homebuilders are successfully luring buyers off the sidelines with aggressive sales incentives. This month, 39% of builders reported cutting prices in a survey by the National Association of Home Builders and Wells Fargo, a post-pandemic high.

Homebuilder Lennar Corp. recently reported offering sales incentives equal to 14.3% of its average sale price, more than double its usual 5% or 6%, Bloomberg Intelligence analyst Drew Reading said in a note. (…)

More demand for durable goods…

Sky-High S&P 500 Signals ‘New Normal,’ Not Bubble, BofA Says

US stocks are screamingly expensive when viewed from a historical perspective. But dig into the details, and the sky-high valuations may well be warranted, say strategists at Bank of America Corp.

The S&P 500 Index is trading at statistically rich levels based on 19 of 20 in-house metrics tracked by BofA, with four hitting all-time highs, a team led by Savita Subramanian said Wednesday in a note to clients.

Yet the attributes inherent in the current mix of members — including less financial leverage, lower earnings volatility, increased efficiency and more stable margins than in decades past — help to support the towering valuations, she argues. (…)

“The index has changed significantly from the 80s, 90s and 2000s,” Subramanian, BofA’s head of equity and quantitative strategy, wrote. “Perhaps we should anchor to today’s multiples as the new normal rather than expecting mean reversion to a bygone era.” (…)

This week, the S&P 500’s 12-month forward price-to-earnings ratio touched a high of 22.9, a level that this century was exceeded in just two prior instances: the dot-com bust and the pandemic rally in the summer of 2020 when the Federal Reserve reduced interest rates to near zero. (…)

“Buying stocks at these multiples feels bad,” Subramanian wrote, but a boom in sales, earnings and GDP would “resolve this seemingly untenable situation” by justifying those pricey levels, she added. “With major regions in easy fiscal mode, and with the Fed cutting against a backdrop of broadening and accelerating profits, it’s not hard to argue” for such a boom, Subramanian added.

“This is the higher probability ‘tail’ in 2026 than stagflation or recession, in our view,” she said.

China’s Boost to Argentine Soy Buying Sidelines US Farmers

China ramped up buying of soybeans from Argentina this week after the South American country abruptly suspended export taxes, sidelining US farmers who usually dominate the trade at this point of the year.

Importers in China have expanded purchases to at least 35 cargoes, up from an earlier tally of 20 shipments, according to people familiar with the matter, who asked not to be identified as they’re not authorized to speak to the media. Most of the soybeans are slated to be loaded in November, they added. (…)

The world’s largest importer typically turns to US supplies between October and February following the American harvest, while the new Brazilian crop is in the process of growing for collection in March.

But as of Sept. 11 — almost two weeks into the new marketing season for the US — China hadn’t booked a single American cargo. That’s the first time in records going back to 1999, according to US Department of Agriculture data.

The American Soybean Association urged President Donald Trump to secure an “immediate deal” with China following reports of the Argentine purchases. In a statement on Wednesday, the group said “the farm economy is suffering.” (…)

• Bessent Lauds Milei at Midtown Gala as US Plans Argentina Rescue

(…) “Tonight we recognize President Javier Milei for his tireless efforts to make Argentina great again,” said Bessent, introducing Milei to receive an award at an Atlantic Council dinner on Wednesday. He hailed Milei’s “visionary leadership,” saying the Argentinian leader “recognized government is not the solution, it is the problem.” (…)

With Argentina, Bessent is trying to support a currency under threat. In so doing, he’s effectively moving to prop up one of Trump’s closest allies on the world stage in a region where China has been making inroads with other nations, including neighboring Brazil. (…)

The Treasury secretary earlier Wednesday said the US plans to extend a $20 billion swap line to Argentina, and stands ready to buy the country’s foreign bonds. That provided much-needed financial support to Milei as he tries to regain investor confidence and stem a run on his nation’s currency. (…)

He made clear in an interview on Fox News that the financing was meant to help Milei ahead of next month’s crucial vote. (…)

Bessent’s overture also marks an extraordinary turnabout for a US president who was elected on a promise to limit American military and financial interventions overseas in favor of focusing on domestic concerns. Since taking office, Trump has slashed billions in foreign aid. (…)

And in Trump and Bessent, Milei has found a pair of financial backers from the world’s largest economy, ready to intervene in order to stave off a collapse of his nation’s currency caused by doubts about Milei’s own economic plans. And all of that comes just ahead of key midterm elections next month in Argentina, as polls show the more liberal opposition gaining support. (…)

Trump has stoked conflict with leftists in Latin America, slapping tariffs on Brazil, whose President Luiz Inacio Lula da Silva is an elder statesman in the region. He’s also hit Mexican President Claudia Sheinbaum’s nation with duties, repeatedly clashed with Colombia’s Gustavo Petro and ordered strikes on boats belonging to alleged drug traffickers in the Caribbean as a warning to Venezuela’s Nicolas Maduro.

By contrast, Milei has carved out a friendly path with Trump, making multiple trips to the US, including for Trump’s inauguration in January. Bessent also made Argentina one of his first trips as Treasury Secretary in April to show support for Milei’s economic program days after the nation won a new loan from the International Monetary Fund.

From the FT:

One of biggest obstacles to Milei rethinking his political strategy may be his sister and life-long confidante, Karina. As presidential chief of staff, she has tried to build electoral support for Milei’s upstart political party La Libertad Avanza.(…)

Karina is also embroiled in a corruption scandal that hurt Milei’s reputation as an outsider determined to break with Argentina’s notoriously venal politics. The former head of the government’s disability agency and Milei’s former lawyer, Diego Spagnuolo, was heard on recordings discussing commissions of 3 per cent on medicines being funnelled to Karina.

Milei’s response has failed to quell voters’ doubts, analysts say. The president stayed silent for a week, then dismissed Spagnuolo as a liar, then claimed the recordings were AI-generated.

On Saturday he told local media the claims were improbable because 3 per cent was a low figure: “Would you take 3 per cent when you could take 100 per cent?”

The Extraordinary Rise of Electric Cars in Developing Countries Colin McKerracher, head of transport for BloombergNEF

(My emphasis)

(…) from 2019 till now, the size of the fleet forecast has gone up a fair bit. But actually in the last three years, it’s been level and even slightly down. So 2025 was the very first year where our global forecast went down, and that’s because we were anticipating, and starting to see now, a very strong drop in the US. It’s not dropping yet, but the policy levers going away under the Trump administration will absolutely have an impact.

And this is an important thing to mention, is that policy still really matters. You still get the policies that you vote for, and those policies have an impact on the market.

But zooming out and sort of taking the long view, I think the biggest reason why it’s gone up over a five or six year time horizon is that we reached the point of organic consumer demand takeoff in China about three years sooner than we thought we would. So our general view before was that China and most of the markets are policy push markets for the next few years, and then around 2025 it takes off.

What happened in China is that around 2021-2022, organic consumer demand vastly outstripped what the government targets were. Over 50% of sales have a plug, the largest auto market in the world, half of the sales are electric, and that is way ahead of what the government targets were. What that means is that that kink in the curve where you get organic consumer adoption has come about three years sooner than we thought (…).

Battery costs have come down dramatically. (…) as soon as you started to look at battery costs and battery prices, you sort of concluded, ‘whoa, there’s something really dramatic going on here.’ And eventually you’re going to get to price parity between electric vehicles and combustion cars, and that’s largely what’s played out.

Not everywhere, like an EV is still significantly more expensive in the US, and depending on where you are in parts of Europe, than a combustion car. But in China, it is cheaper. And again, that’s part of why you’ve seen that organic consumer demand take off. (…)

So you do need competitively priced EVs. We’re getting more and more of those around the world, and that’s a big part of why you’ve seen adoption take off. And underlying that is the battery story. And batteries do keep getting cheaper, and they do keep getting better.

(…) we have revised our US EV adoption forecast dramatically down in this year’s outlook. And the biggest thing behind that is that the federal tax credit is going away. So at the end of September, it’s gone. And then the other thing is that the fuel economy regulations, the CAFE regulations, are being rolled back, and both of those were set to be big drivers, along with some parts of the Inflation Reduction Act that were incentivizing the supply side. So virtually all of those are under threat.

Now the other big pillar of US EV adoption has been California, and the standards that California sets for vehicles and the zero emissions vehicle mandate in California that exists because of the waiver that California has to set its own standards. Trump has gone after that waiver. (…) Our outlook this year assumes that California retains some ability to set its own air quality standards, and that things like the ZEV mandate in California may be revised, but not fully eliminated. That could go down further. So we already reduced our outlook pretty significantly between last year’s and this year’s for US EVs in 2030. We could revise it further if that California ability is confirmed to be removed.

You said that China is now selling more than half of all its new car sales as electric. But there’s a more shocking stat in the report that this will be the first year when China will sell more electric cars than the total number of cars sold in the US whether that’s electric or those massive gas guzzling pickup trucks. What is that going to do to the competitiveness of US automakers?

(…) in Q4, we think there’ll be more EVs sold of all types, not including two and three wheelers, but cars and trucks versus combustion vehicles and all types of vehicles in the US, which is pretty remarkable. So it’s going from very few sales a few years ago to overtaking the entire size of the US vehicle market, which is part of the reason we say as well that combustion vehicle sales peaked in 2017. (…)

And not only are they selling a lot of electric vehicles within China, but the amount of vehicles they’re exporting is also rising really quickly. So China has become the largest vehicle exporter in the world, overtaking Japan last year and Germany the year before. There is a real risk right now in the US, and US consumers are not able to access these vehicles that the Chinese automakers are producing because of 100% tariff, which basically makes it impossible for an automaker to sell there profitably.

There is a real risk that the US market is sort of evolving as its own island, if you will. If you think of evolutionary life forms, these islands that get cut off from other parts of the world, they grow different species within them. And there was always a bit of that within the US and North American market. But it starts to look like a stronger effect if the rest of the world is moving much more forcefully towards electrification.

And you don’t have to go very far from the US, or from Canada even to see that. If you look at Latin America, other parts of the Americas, you’re seeing really strong growth in electric vehicles coming from mostly Chinese manufacturers.

So there is a competitiveness risk, I will say (…). About 25% of global car sales this year are going to be plug-ins, and the majority of those are battery electric. So maybe it’s not so early in the transition anymore, but there is still room for this to turn around, and companies like Tesla, though their sales have fallen a little bit in the last little while in some markets, they are still leaders in electric vehicles globally, so there is still room to compete and to be at the forefront of this.

But it does look more and more like under the Trump administration, the US will fall further behind on electrification and on batteries, and it is unclear yet whether that’s something they’ll be able to recover from if that set of policies lasts four years or longer. (…)

If you’re sat in the US, this might sound surprising, but you’re getting higher rates of EV adoption in many emerging economies than you have in the US, than you have even in some European countries. And the list is getting longer. So it used to be maybe one or two countries, but now you say, ‘Okay, actually, we’ve got quite high rates in Brazil, in Uruguay, in Costa Rica, in big parts of Southeast Asia, Vietnam, Thailand, Nepal, Ethiopia.’

These are not places that are doing this for some sort of obligation around CO2 emissions, or some sense of moral obligation to other countries. Primarily, those factors can play a role, but they’re primarily doing it because it’s the lowest cost economic choice.

Now, I think there is a bit of a pushback from some of these countries if they make automobiles themselves to say — and India is a good example of this — ‘We want more of it made here. We don’t want to import technology.’ But what you’re seeing in places that don’t make a lot of vehicles of any type within the countries, they’re saying, ‘we’re importing this either way, we may as well import the one that cleans up local air quality and is cheaper to buy.’ (…)

And again, not just in a few countries, in many countries, and in many different segments, two wheelers, buses, delivery vans, cars, all those are really moving in a lot of emerging economies. Then the whole thing goes a lot faster.

So India is probably the most interesting one to watch, to be honest, because the numbers are starting to go up quite quickly. You do have domestic manufacturing, so the model choice is going up very fast. (…)

The fastest growth rates are all in countries where Chinese vehicles are part of the mix, they’re forcing competition. They’re bringing down costs for consumers. And sometimes I hear in the US people say, ‘no, no, consumers don’t want to buy these.’ And I say, ‘well, let’s take out that 100% tariff and see what happens. Let the consumer decide.’ (…)

Nepal, 70% of all new cars are electric. Thailand, 60%. Vietnam, 40%. No developing country can quite match your resident country of Norway, where 100% cars that are sold are EVs. But barring that exception, we are now at that place where many developing countries have begun to leapfrog developed countries when it comes to new sales of cars. (…)

And the last time I was in San Francisco, I took one [autonomous car] in a rainstorm, a full on downpour, and it handled everything really, really smoothly. So the technology is getting better. The number of trips is going up exponentially. You’re seeing their first permits approved to pick up at airports. And again, if you look at shared mobility patterns, airport pickups are a really big part of Uber and Lyft earnings, and things like that. So there’s a lot of trips available there.

(…) 90% of all the kilometers traveled in autonomous vehicles today are electric. So that’s happening. It’s not hypothesized anymore. That market is electric, but it’s probably more like the 2040s or say the late 2030s and onwards, where it starts to make a material impact in global transit patterns and global energy use from transport.

So we think about 25% of cars this year will be electric. That’s battery electrics and plug-in hybrids combined. If you go down from there, light commercial vehicles, about 10% will be electric this year, medium and heavy, about 4%. So passenger cars are ahead of those two segments, but they’re actually behind the two leading segments, which is two and three wheeled vehicles, which is 39% of global sales this year will be electric, and buses, about 43% of sales will be electric.

So when you think particularly about emerging economies, think of this combined ecosystem of different vehicle types. It’s not all about passenger cars, but you’re seeing progress, rapid progress, on electrification in multiple segments at once. (…)

And actually, what’s interesting in the oil displacement story is that early on a lot of it was driven by buses and two and three wheeled vehicles, and just now you’re starting to see passenger cars start to make a material dent. It’s about 2 million barrels per day being displaced right now by electric vehicles of all types. Now that’s against over 100 million barrels per day of oil demand globally.(…)

But I think where it gets quite interesting is the markets where you’re seeing higher levels of EV adoption, because there you are starting to get significant displacement. (…) So places like Norway, you’re getting about three to 4% drop in liquid fuel demand for road transport every year, and that’s just as the fleet turns over.

In China, which has been the biggest driver of oil demand growth over the last two decades, various groups, including Sinopec, the largest fuel distributor in the country, has said they think gasoline demand is either peaking this year or has already peaked. Diesel demand, they see growing for a little bit longer because of heavy trucks, but you’re actually also starting to see pretty rapid uptake of electric trucks, about 16% right now, of heavy truck sales are electric, much higher for vans.

So that’s starting to displace as well. When we add that all together, we at BloombergNEF see global road oil demand, or road fuel demand, which is a contributor to global oil demand, peaking around 2029, so within four years. Now that doesn’t mean overall transport demand peaks. That’s just road transport with shipping and aviation. You could see that growing for another couple of years. But then our view is that the sort of weight of that road fuel part, which is still the biggest consumer of oil, biggest single consumer of oil in the world, starts to outweigh both the rising shipping and aviation part around 2031.

And then you start to get a peak around there. Now this is a hotly debated topic, but I would say that you can look a little bit just at the fleet of vehicles like the biggest thing driving oil, global oil demand is the fleet of combustion engine vehicles on the road. It is still growing, therefore oil demand is still growing, but it’s not going to grow for much longer, because we passed the peak of sales in 2017. It takes above 10 years for that to fully flow through the fleet, and then that flows through to gasoline and oil demand. (…)

• Climate change is “the greatest con job ever perpetrated on the world.” (Trump)
• “Green and low-carbon transition is the trend of our time”. (Xi)

Europe Car Sales Keep Rising as EVs, Hybrids Lure Consumers

New-car registrations across the region rose 4.7% last month from a year earlier to 791,349 units, the European Automobile Manufacturers’ Association said Thursday. Germany and Spain gained more than 5%, while demand in the UK and Italy dwindled.

Even as electric-vehicle sales pick up pace in Europe, automakers are grappling with a slower uptake than had been predicted. While volume players are starting to gain traction with more affordable EVs, luxury-car makers such as Porsche AG are rolling back their electric ambitions due to weaker demand and high costs. (…)

For car manufacturers, plug-in hybrids are a bright spot, with a 56% rise in registrations last month for cars combining electric driving with a combustion engine. Sales of fully electric vehicles increased 27%. (…)

US EV pioneer Tesla Inc. continued its downward spiral. European sales of the brand led by Elon Musk dropped 22% in August, giving it a market share of just 1.9%.

Volkswagen, BMW and Mercedes-Benz Group AG all gained, while BYD outshone them all as it more than tripled deliveries, though sales still remain relatively low.

US shale bosses decry ‘chaos’ in Donald Trump’s energy policy Oil executives tell survey that administration support for low prices and levies on crucial goods is scaring investors and raising costs

Donald Trump’s tariffs and drive to slash oil prices are “kneecapping” the US shale sector, chilling investment and risking reprisal against the industry, executives have warned.

Immediately after entering the White House, the president declared a “national energy emergency”, pledging to “drill, baby, drill” and pass on lower energy costs for consumers.

But bosses told a survey by the Federal Reserve Bank of Dallas that the administration’s support for low prices, levies on crucial goods and chaotic decision-making is scaring off investors and increasing costs. The report is often a source of surprisingly frank assessments of US energy policy because executives are allowed to provide responses anonymously.

“The noise and chaos is deafening! Who wants to make a business decision in this unstable environment?” wrote one exploration and production executive.

The government “operate[s] with little understanding of shale economics”, said another. “They’ve effectively aligned with Opec — using supply tactics to push prices below economic thresholds, kneecapping US producers in the process.”

Since January the price of West Texas Intermediate, the benchmark for US crude, has declined 18 per cent. Respondents said drilling becomes a money-losing proposition below $60 a barrel.

“The administration is pushing for $40 per barrel,” said one executive. “Drilling is going to disappear.”

Trump’s trade policy featured heavily among concerns because of 50 per cent tariffs placed on steel and aluminium since June. A boss in the oil and gas support services sector said it was suffering from “increased cost[s] due to tariffs”.

Another responded that the subsector was “bleeding”. (…)

The report showed activity declined 6.5 per cent in the third quarter, a slight uptick from the previous quarter’s dip of 8.1 per cent.

However, negative outlook nearly tripled, slumping 17.6 per cent among the 139 companies that responded. (…)

But lower oil prices are keeping inflation low, sustains discretionary income and making voters happy.