US FLASH PMI

Business growth slows in September, but selling price inflation also cools

The headline S&P Global US PMI Composite Output Index fell from 54.6 in August to 53.6 in September, according to the ‘flash’ reading (based on about 85% of usual survey responses). However, although signaling a weakened rate of growth for a second successive month, the still-elevated PMI reading indicates that the third quarter a whole has seen the strongest average monthly expansion since the end quarter of 2024. Output has now grown continually for 32 months.

While the services economy provided the main driving force behind September’s rise in business activity, the sector registered a slowing of growth for a second successive month to the weakest since June. Inflows of new orders for services likewise showed the smallest rise for three months as weaker domestic demand growth offset the first rise in exports since March.

Higher output was meanwhile reported in the manufacturing sector for a fourth consecutive month, but the expansion was much weaker than the strong gain (a 39-month high) seen in August. New order inflows in the goods-producing sector also weakened to only a marginal pace, in part due to an increased rate of loss of exports due to tariffs.

Employment rose for a seventh straight month in September, though the rate of job creation slowed. Lower job gains were seen across both manufacturing and service sectors.

Although service companies continued to take on extra staff in response to rising workloads and improved confidence, the September survey saw a higher incidence of companies unable or unwilling to fill vacant positions. In manufacturing, the survey saw more of a focus on job losses due to cost cutting.

Although September saw a sixth successive month of rising backlogs of work, the build-up was focused on the service sector, with manufacturing reporting the fastest decline in backlogs of uncompleted orders since April.

With backlogs of work falling, manufacturers cut back on their input buying in September for the first time since April. More supply chain delays were also reported, inhibiting purchasing, often linked to tariffs and imports. September’s lengthening of delivery times was the second-largest recorded for nearly three years, exceeded only by that recorded in May after April’s tariff announcements had disrupted shipments. Stocks of purchases consequently rose less than in August.

Higher production at a time of slowing sales growth was meanwhile commonly cited as the underlying cause of the largest build up of finished goods inventories in over 18 years of manufacturing PMI data collection. Inventories have now also risen in four of the past five months.

Tariffs were again overwhelmingly cited as the principal cause of further cost increases in September, most evidently in the manufacturing sector. Manufacturing input price inflation remained elevated at one of the highest rates since the pandemic, albeit dipping slightly since August. Service sector inflation meanwhile hit the second-highest recorded over the past 27 months (surpassed only by May 2025).

Although overall input cost inflation consequently accelerated to its highest since May and therefore the second highest level for just over two-and-a-half years, average prices charged for goods and services rose at the slowest rate since April. Firms across both manufacturing and services often reported difficulties passing higher costs on to customers due to weak demand and growing competition. Goods price inflation cooled especially sharply, down to its lowest since January whilst selling prices in the service sector rose at the weakest rate since April.

Looking ahead, companies’ expectations about output in the year ahead improved to a four-month high in September yet remained below the survey’s long-run averages in both manufacturing and services.

Service sector sentiment picked up to the highest level since May, while a three-month high was recorded in manufacturing.

Outlook concerns continued to center on government policies, notably tariffs, and broader political uncertainty, though in manufacturing tariffs were again often cited as hopefully providing a stimulus to domestic production in the coming year. Both sectors saw business confidence improve on the back of lower interest rates.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence:

“Further robust growth of output in September rounds off the best quarter so far this year for US businesses. PMI survey data are consistent with the economy expanding at a 2.2% annualized rate in the third quarter.

“However, the monthly profile is one of growth having slowed from its recent peak back in July, and September saw companies also pull back on their hiring. Softening demand conditions are also becoming more widely reported, curbing pricing power. Although tariffs were again cited as a driver of higher input costs across both manufacturing and services, the number of companies able to hike selling prices to pass these costs on to customers has fallen, hinting at squeezed margins but boding well for inflation to moderate.

“The survey data are nevertheless still indicative of consumer inflation remaining above the central bank’s 2% target in the coming months. However, in manufacturing,there are also signs that disappointing sales growth has caused inventories to accumulate at an unprecedented rate, which could also further help soften inflation in the coming months.

“The inventory build-up of course also hints at some downside risks to future production. While growth expectations across both manufacturing and services also continue to be dogged by concerns over the political environment, and especially tariffs, September encouragingly saw business sentiment improve in part due to the anticipated beneficial impact of lower interest rates.”

Quite a report:

• Business activity was reasonably good but:
• New orders at service providers “showed the smallest rise for three months on weaker domestic demand growth”. Some are “unwilling” to fill vacant positions
• New orders at goods producers grew marginally triggering cost cutting efforts as backlogs fall and inventories swell (in spite of strong retail sales reported last week).
• Overall cost inflation is accelerating to levels not seen since the pandemic largely due to tariffs.
• Overall selling price inflation slowed to its slowest since April as firms “reported difficulties passing higher costs on to customers due to weak demand and growing competition”.
• Sentiment remained positive on lower interest rates and hopes that tariffs will boost production next year.

Meanwhile

OpenAI Unveils Plans for Seemingly Limitless Expansion of Computing Power In Texas prairie, startup showcases ground zero of AI boom and its plans to shepherd $1 trillion in infrastructure spending

OpenAI laid out its vision for a vast, $1 trillion build-out of computing warehouses across the U.S. and abroad Tuesday, showcasing the development of a Central Park-sized complex about 180 miles west of Dallas. (…)

OpenAI disclosed that it would ultimately need more than 13 times the computing power of its first nascent site, which is rising out of the Texas brushland.

Frenzied construction here has turned a sea of red dirt into eight hyper-futuristic data centers bringing online roughly 900 megawatts of capacity. More than 6,000 workers labor on the project each day, including electricians, plumbers, and steel welders, alternating between two 10-hour shifts, seven days a week. Grey towers of gas turbines have dotted the landscape since the spring, offering backup power.

On a tour with reporters Tuesday, Oracle and OpenAI executives showcased the 1,100-acre site, calling it the largest AI supercomputing complex in the world. (…)

OpenAI also announced five new data-center sites across the U.S. built with Oracle and the Japanese tech conglomerate SoftBank. It said the new facilities would help bring online nearly 7 gigawatts of power, enough for almost eight million homes.

Company executives made clear that the Abilene site was just the beginning, noting that they envision a need for more than 20 gigawatts of computing capacity to meet the explosive demand for ChatGPT, which now has more than 700 million weekly users.

Each gigawatt of capacity is expected to cost roughly $50 billion, meaning the company is laying the groundwork for at least $1 trillion in infrastructure spending. Demand is likely to eventually reach closer to 100 gigawatts, one company executive said, which would be $5 trillion. That exceeds the annual GDP of Japan or Germany.

“I don’t think we’ve figured out yet the final form of what financing for compute looks like,” OpenAI Chief Executive Officer Sam Altman said. (…)

Three new sites, one located near Abilene, another north of El Paso in New Mexico and a yet-to-be-announced Midwest location, combined with an expansion to the Abilene complex, will be capable of delivering 5.5 gigawatts of capacity. Those will be built with Oracle. Two other smaller sites—one in Lordstown, Ohio, and the other near Austin, Texas—will be built in partnership with SoftBank and generate 1.5 gigawatts over the next 18 months. (…)

Proponents of the infrastructure boom say it will bring hundreds of thousands of jobs and revive American manufacturing. In January, OpenAI unveiled a $500 billion data-center project alongside President Trump at the White House called Stargate, promising to support “the re-industrialization of the United States.”

The reality is more mixed. While data centers provide plentiful temporary construction jobs, far fewer people are needed once they are built. Abilene Mayor Weldon W. Hurt said residents had “mixed feelings” about the site and its power and water usage, though some of the concerns had been assuaged. An Oracle executive said there will be roughly 1,700 permanent jobs on-site once construction ends. (…)

• Alibaba Shares Soar After Hiking AI Budget Past $50 Billion

Chief Executive Officer Eddie Wu anticipates overall investment in artificial intelligence accelerating to some $4 trillion worldwide over the next five years — and Alibaba needs to keep up. The company will soon add to a plan laid out in February to spend more than 380 billion yuan ($53 billion) developing AI models and infrastructure over three years, he said. His cloud division, which already operates services from the US to Australia, intends to launch its first data centers in Brazil, France and the Netherlands in the coming year.

Wu made his projections while outlining plans to roll out Qwen models and “full-stack” AI technology, reflecting Alibaba’s growing ambitions to both develop services and the infrastructure — such as chips — that underpin the technology. (…)

“The industry’s development speed far exceeded what we expected, and the industry’s demand for AI infrastructure also far exceeded our anticipation,” Wu told a developer conference in Hangzhou on Wednesday. “We are actively proceeding with the 380 billion investment in AI infrastructure, and plan to add more.” (…)

Total capital expenditure on AI infrastructure and services by Alibaba, Tencent, Baidu Inc. and JD.com Inc. could top $32 billion in 2025 alone, according to Bloomberg Intelligence. That’s a big jump from just under $13 billion in 2023.

All of China’s internet majors are developing AI models and services at a rapid clip, including Tencent’s Hunyuan and Baidu’s Ernie. On Wednesday, Alibaba unveiled its new Qwen3-Max large language model and a series of other improvements to its suite of AI offerings. (…)

In the most recent quarter, the Hangzhou-based company reported triple-digit growth in its AI-related products. Its cloud division also posted a better-than-expected 26% jump in sales, making it the group’s fastest-growing unit. (…)

“Companies only gain confidence to invest more when the visibility of the returns improves,” said Vey-Sern Ling, managing director at Union Bancaire Privée. “So when they say they are raising investments in AI, it indicates good demand from customers and good ROI.” (…)

On Wednesday, Wu talked about hardware innovations that Alibaba is working on, including chips and faster computers and networking — all pivotal components of data centers. It’s secured a high-profile customer for its AI chips: Chinese state media reported last week the country’s No. 2 wireless carrier China Unicom would deploy the Pingtouge or “T-Head” AI accelerators. (…)

The Chinese company revealed Wednesday it’s integrating Nvidia’s suite of development tools for physical AI into its cloud software platform, giving clients the chance to build services for products in the real world such as robots and driverless cars.

Powell’s Irrational Exuberance Moment

Ed Yardeni:

During a speech in Providence, Rhode Island today, Fed Chair Jerome Powell was asked whether he and his colleagues give any weight to the impact of their monetary policies on financial markets. He responded: “We do look at overall financial conditions, and we ask ourselves whether our policies are affecting financial conditions in a way that is what we’re trying to achieve.” Then he opined that “by many measures, for example, equity prices are fairly highly valued.” However, he then added that this is “not a time of elevated financial stability risks.”

We are inclined to agree with the Fed chair, although he triggered our contrary instincts with that last statement. Financial crises tend to be Black Swans, i.e., events that occur unexpectedly, especially when irrational exuberance is widespread and intensifying. (…)

Currently, the weekly S&P 500 forward price-to-sales ratio is at a record high of 3.19 (chart). The S&P 500 forward price-to-earnings ratio is at a near record high of 22.8. The Tech Bubble burst after it reached a peak of 25.0 in late 1999.

During the Tech Bubble, the market-cap share of the S&P 500 Information Technology and Communication Services sectors combined rose to 40%, while the earnings share peaked at 23% (chart). This time, the former is at a record 44% with the latter also at a record high, of 37%.

The good news for now is that weekly S&P 500 forward earnings per share has been rising at a faster pace in recent weeks (chart). This suggests that Q3 earnings will rise to another record high.

Meanwhile, the recent jump in the breadth of positive three-month changes in forward revenues is remarkable (chart). It belies the widespread perception that the economy is slowing.

The same can be said for the recent big jump in the percent of S&P 500 companies with positive three-month percent changes in forward earnings (chart).

Ed could have inserted these other charts:

Carney Touts Trade Opportunities With China, Aims to Meet With Xi

Canadian Prime Minister Mark Carney said after a meeting with China’s premier that he sees major opportunities for the countries to expand energy and agricultural trade, and expects to eventually sit down with President Xi Jinping.

Carney has sought to ease tensions with the Asian superpower that flared up under his predecessor, Justin Trudeau. US protectionism under President Donald Trump has brought Canada’s need to diversify trading relationships into sharp focus (…).

“There is a very broad range of commercial relationships that already exist and a much larger range of opportunities for both countries,” Carney said Tuesday following the meeting with Li Qiang on the sidelines of the United Nations General Assembly meetings in New York. (…)

While the EV tariffs are currently undergoing a review, removing them now may threaten delicate trade talks with the US, ahead of an upcoming review of the US-Mexico-Canada Agreement.

That leaves the question of what Canada can realistically offer China as it seeks relief from agricultural import taxes.

Carney on Tuesday emphasized that Canada has only aligned with “some” US tariffs on China, and he did not specifically highlight the EV levies in his remarks. (…)

Foreign Affairs Minister Anita Anand plans to meet with her counterparts in China and India in the coming weeks. Canada must “ensure we have a bilateral relationship with significant economic powers in the Indo-Pacific,” Anand said in an interview.

China is Canada’s second-largest trading partner after the US, and canola is worth tens of billions of dollars annually to the Canadian economy. Anand said she spoke about the sector with the foreign minister of Pakistan, the world’s third-largest canola importer.

“We will be ensuring that there are alternative trade routes for canola exporters in our country,” she said. (…)

Bank of Canada Says Trump Trade Policy May Hurt Greenback’s Safe-Haven Status

Bank of Canada Governor Tiff Macklem suggested the US dollar’s status as a “global safe asset” may be hurt by President Donald Trump’s trade policies.

In a speech Tuesday, Macklem said global investors are considering whether US dominance in global financial flows will ebb as the world’s largest economy pulls back from global trade and runs large fiscal deficits.

“Providing safe assets to the world has its benefits. The United States can borrow money to finance growing fiscal deficits at a lower rate than it could otherwise,” Macklem said in prepared remarks of a speech in Saskatoon, Saskatchewan.

But “President Trump’s ‘Liberation Day’ shook global confidence,” Macklem said, referring to the president’s April 2 announcement the the US would put new tariffs on dozens of trading partners.

Investors would have expected tariffs to support the US currency, but instead the greenback has depreciated while the price of gold has risen, Macklem said. With the dollar weakened by about 10% against other major currencies since the start of the year, its “safe-haven role was called into question,” he said.

“It’s too early to know if this is the start of a new era,” the governor said. While the greenback will likely remain the global reserve currency for the foreseeable future, “for many, its value as a hedge in times of stress has been dented.”

Trump’s attempts to influence the Federal Reserve are also “raising questions about the continued independence of US monetary policy,” Macklem said. (…)

“The US has swerved sharply to protectionism,” he said. “The large increase in US tariffs is weakening global demand, disrupting supply chains, raising prices and putting the Canadian and global economies on permanently lower paths.” (…)

“Increased trade friction with the US means our economy will work less efficiently, with added costs and less income,” Macklem said. “There is no better time than now to deepen investment, improve productivity and expand our market.” (…)

Macklem said Canada needs to leverage existing trade agreements with 50 countries beyond the US.

“Canadians have embraced the power of economic patriotism — elbows up,” Macklem said, referring to a hockey term that has become synonymous with the Buy Canada movement since the US tariff war began. “But now we need to roll up our sleeves and do the hard work to be more competitive.”

Goldman Sachs:

The Dollar will not be replaced anytime soon, but it should still depreciate. Even though there are few alternatives to the multiple roles that the Dollar plays in the international financial system, we think Dollar overvaluation will diminish as the US economy’s less exceptional performance makes it harder for the US to attract unhedged capital flows.

Limited evidence of de-dollarization in recent years. Lower US interest rates, tariffs, and trade policies have weighed on the Dollar, but evidence of true de-dollarization is still limited. While the Dollar’s share of central bank reserves has declined, it remains dominant in global debt issuance, cross-border transactions and loans, and in spot FX trading volumes. And recent data show no significant shift away from the Dollar so far this year – Dollar dominance persists, with only small signs of erosion on the margins.

What would it take to displace the Dollar? Structural factors like the US’s share of global debt, GDP, and global trade matter more for Dollar internationalization than shorter-term financial swings – and inertia in currency choice typically means these changes are slow, and can often be nonlinear. The US’s shrinking share of global trade could gradually erode Dollar dominance, but displacement appears to be a long way off. Meanwhile, the rise of Dollar-pegged stablecoins and a lack of credible alternative global currencies should act as reinforcing mechanisms for the Dollar’s current global standing.

The TINA factor. Attempts to diversify away from Dollar dominance—especially following the freezing of reserves post the Russia-Ukraine war—are stymied by the unmatched scale, liquidity, and network effects of the Dollar. Alternatives such as the Euro struggle with fiscal unity, while the Renminbi is held back by capital controls; bilateral currency initiatives also face hurdles. As a result, the near future will likely feature a patchwork of currency zones, with the Dollar remaining central.

Our forward-looking Dollar view. The Dollar is poised to depreciate further in coming months, because less exceptional economic and market performance no longer warrants its high valuation. While we expect Dollar dominance to erode only slowly, Europe’s growth-supportive fiscal shift and China’s robust export sector argue for Euro and Yuan strength. At the same time, investors concerned about institutional governance and FX risks are likely to further hedge against US asset exposure, pushing the currency weaker.

Failing Schools Are Why We Need H-1B Visas

(…) The latest results from the National Assessment of Education Progress were released earlier this month, and they weren’t pretty. High-school seniors recorded the worst reading scores since 1992, and math scores were the lowest since the current test began two decades ago. Elementary-school students have also lost ground. Just 31% of eighth-graders scored at or above the proficient level on the science assessment.

According to an analysis of the NAEP findings by Brandon Wright of the Thomas B. Fordham Institute, an education-policy think tank, the percentage of students scoring at the highest level has stalled or decreased. “Math performance at the Advanced achievement level and the 90th percentile is flat,” he writes, while aptitude in reading fell. “And the decline, rather puzzlingly, seems to have been driven mostly by girls and kids whose families are middle class or higher—groups that historically have done better than their less affluent and male peers, respectively.”

Covid didn’t help, but these trends predate school closings, Zoom instruction and mask mandates. The ramifications extend far beyond our borders. The Program for International Student Assessment exam is a global assessment of 15-year-old pupils. In 2018 only 8% of U.S. test-takers scored in the top tier in mathematics, compared with 15% in Canada, 18% in Japan and 29% in Hong Kong. Today’s students will populate tomorrow’s labor force, and employers who rely on workers with math, science and engineering backgrounds have been complaining for decades that too many Americans are uninterested or ill-prepared to fill these jobs. (…)

Why US Used Magnitsky Act to Sanction Wife of Brazilian Supreme Court Justice

The law known as the Global Magnitsky Act authorizes the US president to impose sanctions on non-Americans identified as engaging in human rights violations or corruption. It’s been wielded against, among others, Russian prison authorities, officers in Myanmar’s military, prominent South African business leaders, and Chinese government officials responsible for the Xinjiang region.

On Sept. 22, the administration of President Donald Trump used the law to sanction Viviane Barci de Moraes, the wife of Brazilian Supreme Court Justice Alexandre de Moraes. The judge was targeted under the act in July for his role in the prosecution of former Brazilian President Jair Bolsonaro. A political ally of Trump’s, Bolsonaro was convicted on Sept. 11 of plotting a coup and sentenced to 27 years in prison.

The Department of the Treasury, whose Office of Foreign Assets Control (OFAC) imposes the majority of US sanctions, accused Justice Moraes of responsibility for “an oppressive campaign of censorship, arbitrary detentions and politicized prosecutions” including against Bolsonaro. The department said it targeted his wife and the Lex Institute of Legal Studies, which it said she heads, for “its support” of him.

My emphasis above to highlight … well, you might have figured that out already.

But just in case, the FT’s Edward Luce wrote yesterday:

(…) A few months before the 250th anniversary of the declaration of independence, Donald Trump is pulverising the country’s founding principles with astonishing ease. His war on speech is no drill. Late-night comedians are being targeted. Corporations like Paramount are meekly submitting to his will. Ivy League presidents and globally renowned law firms act as though the First Amendment no longer holds. Outspoken business leaders have suddenly lost their tongues. Since they have the most to lose, those with power and wealth are among the softest targets. 

Trump misses no opportunity to punish dissent, and Kirk’s assassination is his biggest so far. Last week he claimed that 97 per cent of network coverage of him was negative and should be illegal. The federal state’s vast powers are being used to pursue private vendettas. Officials have been forced to take polygraphs to test their loyalties. FBI agents who investigated Trump have been fired. Morale at US spy agencies has never been lower. Trump has publicly instructed the US attorney-general to prosecute three named opponents. 

That his economic ratings are in freefall should be a source of alarm not complacency. Less than a year after Trump was elected, the separation of powers is not working. Congress is irrelevant. The Supreme Court is quiescent. The media is punch drunk. Democrats are fragmented. Independent federal agencies are losing autonomy. The markets are high on the AI gold rush, crypto deregulation and the prospect of a return to easy money.

Stephen Miller, Trump’s most influential domestic adviser — prime minister to Trump’s king — calls the Democratic party a domestic extremist organisation and wants to suspend America’s constitutional habeas corpus right to due process. He is a true American autocrat. 

It has been widely observed that the speed of America’s democratic slide surpasses that of other “elective autocracies” such as Narendra Modi’s India and Recep Tayyip Erdoğan’s Turkey. But that understates Trump’s impatience. Others have shifted to authoritarianism with relatively fast-growing economies, which makes it easier to sustain public support.

Trump’s trade war and his “big beautiful [budget] bill” will rob most Americans of income growth. The idea that the disaffected middle will therefore clip Trump’s wings in next year’s midterm elections is quixotic. Having silenced most institutional dissent within his first nine months, what could Trump accomplish in the next 14? 

At the huge religious revival-style memorial for Kirk in Arizona on Sunday, his widow, Erika, struck a courageous note of dissent from the dominant spirit of vengeance. In the spirit of the Christian gospels, she forgave her husband’s killer. Speaking straight afterwards, Trump corrected her. He could not forgive his enemies, he said. Indeed, he hated them. Trump’s wrath produced cheers from tens of thousands of “Christians” in the stadium. To put it in terms churchgoers would understand, Trump’s America is swapping the New Testament for the Old.

FYI:

President Trump warned last night on Truth Social: “I think we’re going to test ABC out on this. Let’s see how we do. Last time I went after them, they gave me $16 Million Dollars. This one sounds even more lucrative.” (Axios)

World Economy Yet to Feel Full Force of Trump Tariffs, OECD Says

The global economy is still on course for a substantial blow from Donald Trump’s trade measures despite showing greater resilience than expected in recent months, the OECD said.

In new forecasts published on Tuesday, the Paris-based organization raised its 2025 outlook for world growth and most individual economies, citing the impact of front-loading in anticipation of higher tariffs. The US also saw strong investment in artificial intelligence, while China benefited from fiscal support.

But the OECD made little change to its 2026 predictions, when it expects global growth to drop to 2.9% from 3.2% this year and expansion in the US to slow to 1.5% from 1.8% amid higher import duties and elevated uncertainty.

The full impact from an overall effective tariff rate imposed by the White House of 19.5% — the highest since 1933 — has yet to be felt, officials said. (…)

The OECD said inflation is expected to decline in most major economies with slower growth and weaker employment pressures. But it said central banks should remain “vigilant.” (…)

Overall, the organization said there are “significant risks” to its interim outlook, including the possibility of further trade levies or a resurgence of price increases.

Significant Amounts of Tariff Revenue Collected at the Moment

The US government currently collects about $350 billion in tariffs at an annualized rate, which corresponds to 18% of annual household income tax payments.

This is real dollars already paid by importers. Apollo is showing that a complete pass through would represent a 15% increase in household taxes. It would eat up 1.5% of Americans’ disposable income if fully absorbed by consumers, 8.0% of pretax corporate profits if all footed by companies.

It will fall somewhere in between, with greater repercussions from the consumers’ take.

BTW, speaking of repercussions:

USDA Considering A Bailout For Farmers

On Thursday, the Financial Times reported that the Trump administration is exploring the use of tariff revenue to fund an economic aid program for U.S. farmers. As the harvest begins, record-high yields, the lack of a U.S.-China trade deal, and rising input costs, partially due to tariffs, have set up farmers for projected losses.

A key source of concern for farmers has been that China continues to withhold new crop export orders for U.S. soybeans in response to elevated duty rates and to maintain leverage in ongoing U.S.-China trade negotiations. China has historically been the largest destination for U.S. soybeans, importing ~25% of total U.S. soybean production.

In response to President Trump’s tariffs, China imposed 20% retaliatory tariffs on U.S. soybean imports, bringing the total duty rate to 34%, making U.S. soybeans more expensive than South American product. Most U.S. soybeans are shipped to China during September to February, before the Brazil harvest comes to market, with ~15% of annual sales to China typically booked by now.

However, this year China has yet to place a single order, with the country importing record volumes of Brazilian soybeans over April–August in an effort to circumvent the need for American beans.

The situation looks eerily similar to the predicament faced by U.S. soybean farmers in the 2018-2020 trade war, when soybeans accounted for ~70% of agricultural export losses. With the soybean harvest underway, a solution is rapidly needed, whether it be in the form of a bailout or a deal with China.

Eurozone business activity continues to rise, but new orders stall

The seasonally adjusted HCOB Flash Eurozone Composite PMI Output Index, based on approximately 85% of usual survey responses and compiled by S&P Global, posted above the 50.0 no-change mark for the ninth consecutive month in September to signal a further expansion of activity across the euro area’s private sector. At 51.2, the index was up slightly from August’s reading of 51.0 and pointed to a modest monthly rise in output that was the most pronounced since May 2024.

The acceleration in the pace of growth in business activity was due to the service sector posting the fastest rate of increase in 2025 so far. Manufacturing production also rose, but the rate of expansion eased from the near three-and-a-half year high registered in August and was only slight.

Germany was a key driver of growth in September, recording a solid increase in output that was the joint-fastest since May 2023, equal with that seen in May 2024. On the other hand, France saw activity decrease for the thirteenth consecutive month, and at the sharpest pace since April. The rest of the Eurozone registered continued growth of output, but the rate of expansion moderated.

The overall increase in business activity was recorded in spite of a stable picture for new orders. New business was unchanged in September, following a first rise in 15 months during August. A slight rise in services new business was cancelled out by a renewed fall in manufacturing new orders, which decreased to the largest degree since February. Continuing the recent trend, total new order volumes were limited by difficulties securing new business from abroad. New export orders have decreased in each month since March 2022, and the latest modest decline was the most pronounced in six months. New business from abroad was down across both the manufacturing and services sectors.

The lack of growth in new orders meant that companies often used the clearance of outstanding business to support output growth in September. Backlogs of work fell modestly, and at the fastest pace in three months. Work-in-hand has now been depleted on a monthly basis throughout the past two-and-a-half years.

With new orders unchanged, employment was also kept stable in September, thereby ending a six-month sequence of job creation. Staffing levels in the services sector continued to rise, but the pace of job creation was only marginal and the weakest in seven months. Meanwhile, manufacturing employment continued to fall, extending the sequence of job cuts which began in June 2023.

France saw workforce numbers rise for the second month running, albeit only marginally. Meanwhile, Germany posted a solid reduction in employment that was the most pronounced in 2025 so far. The rest of the euro area saw modest job creation.

After having risen to a five-month high in August, the pace of input cost inflation softened in September and was below the series average. Manufacturing input costs decreased for the first time in three months, while services posted a sharp but softer pace of inflation.

A similar picture was seen with regards to selling prices, with a fall in manufacturing coinciding with a slower rise in services charges. Overall, output prices increased modestly, and at the slowest pace since May. Germany posted a solid rise in charges, with the pace of inflation hitting a five-month high. Output prices decreased in France for the first time in four months. Meanwhile, the rest of the Eurozone registered a solid increase in selling prices, but one that was the slowest since last November.

Purchasing activity in the euro area manufacturing sector decreased again in September, extending the current sequence of decline to 39 months. Moreover, the latest fall was solid and the fastest since March. In turn, stocks of purchases also decreased, as did stocks of finished goods. In both cases, however, rates of inventory depletion eased from those seen in August. Latest data pointed to a fourth successive monthly lengthening of suppliers’ delivery times. Moreover, the rate of deterioration in vendor performance was the most pronounced since November 2022.

Although companies in the euro area remained optimistic that output will rise over the coming year, business sentiment dipped to a four-month low in September and was below the series average. The waning in confidence was centred on the manufacturing sector, where optimism was the weakest in the year-to-date. Services sentiment was broadly unchanged from August. Confidence weakened in Germany and France, but improved across the rest of the single-currency bloc.

Commenting on the flash PMI data, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:

“The eurozone is still on a growth path. Manufacturing output has increased for the seventh month in a row, and business activity in the services sector has been expanding almost continuously since February 2024. That said, we’re still a long way from seeing any real momentum. Just consider that the Composite PMI, which combines activity in both manufacturing and services, hit a modest 51.2 points and reached with this a 16-month high.

(…) hopes for an acceleration in growth are not justified as new orders have dropped significantly in both Germany and France. In the medium term, higher defence spending could drive up demand for industrial goods. A more immediate impact might come from Germany’s so-called investment booster and the infrastructure package.

Still, according to the survey, confidence in rising output has actually dipped in both Germany and the eurozone overall.

Hiring, which was already pretty sluggish this year, has now come to a halt. That’s due to slower hiring in services and faster job cuts in manufacturing. Germany, in particular, has been a drag here. It is possible that the eurozone’s official unemployment rate, which fell to a seasonally adjusted 6.2% in July, has now bottomed out.

Cost inflation in the services sector, which the European Central Bank watches closely, has eased slightly but remains unusually high given the fragile economic backdrop. Selling prices have cooled more noticeably, which might just prompt the ECB to consider whether a rate cut before year’s end could be back on the table.”

China Floods the World With Cheap Exports After Trump’s Tariffs Shipments have soared outside the US this year

With access to the US curtailed, Chinese manufacturers have shown they aren’t backing down: Indian purchases hit an all-time high in August, shipments to Africa are on track for an annual record and sales to Southeast Asia have exceeded their pandemic-era peak.

That across-the-board surge is causing alarm abroad, as governments weigh the potential damage to their domestic industries against the risk of antagonizing Beijing — the top trading partner for over half the planet.

While so far only Mexico has hit back publicly this year — floating tariffs as high as 50% on Chinese products including cars, auto parts and steel — other countries are coming under increasing pressure to act. Indian authorities have received 50 applications in recent weeks for investigations into goods dumping from nations including China and Vietnam, according to a person familiar with the matter who asked not to be identified as the information isn’t public. Indonesia’s trade minister pledged to monitor a deluge of goods, after viral videos of Chinese vendors touting plans to export jeans and shirts for as little as 80 US cents to major cities caused an outcry.

For all the pain, the chances of more meaningful action are limited. Countries already embroiled in tariff negotiations with the Trump administration appear reluctant to take on a separate trade war with the world’s second-largest economy. That’s giving Beijing breathing room from US levies at heights economists previously predicted would halve the nation’s annual growth rate. (…)

Officials shielding their economies from Beijing are treading carefully. South Africa’s trade minister has advised against punitive tariffs on Chinese car exports — which nearly doubled this year — and is instead seeking more investment. Chile and Ecuador are quietly imposing targeted fees on low-cost imports, after Chinese e-commerce giant Temu’s monthly active users in Latin America soared 143% since January. While Brazil has threatened more aggressive retaliation, this summer it gave China’s biggest electric car maker, BYD Co Ltd, a tariff-free window to ramp up local production. (…)

Demand for China’s world-beating, high-tech innovations helped drive much of the recent traffic. Rising sales to wealthy markets in Europe and Australia also indicate Beijing simply found new buyers for many products.

India shows how Trump’s redrawing of the global trade map is benefiting Beijing in new ways. Exports to China’s neighbor hit a record $12.5 billion last month, driven largely by Apple Inc.’s suppliers rapidly shifting output of iPhones to India from its Asian neighbor. Those companies, however, still depend on parts and tooling made mostly in China.

In July, Chinese firms shipped almost $1 billion worth of computer chips to India and billions of dollars more worth of phones and parts, according to data released by Beijing. That puts exports on track to exceed last year’s record, with the value of shipments so far this year almost as large as the whole of 2021. (…)

• Trump Trade War Is Helping Jumia Access Chinese Goods, CEO Says The “Amazon of Africa”

US President Donald Trump’s tit-for-tat tariffs with China have caused the world’s second largest economy to divert goods to other markets including Africa.

“Our pipeline of goods from China is getting healthier and healthier and we have a lot more interest from Chinese suppliers and vendors,” Dufay said in a Bloomberg TV interview. “It’s really making our lives much easier.”

(…) as tariffs throttled Chinese shipments to the US, exports to Africa have soared by 25% year on year. (…)

H-1B Visas Are Crucial to American Productivity

(…) US doctoral programs in STEM fields are often dominated by foreigners. But it would be wrong to say they are stealing spots from Americans; US universities have their pick of global talent, and non-Americans just have much stronger math and science backgrounds. And I now appreciate that competing against my classmates helped me in ways I still benefit from.

Most of them stayed in America, got H-1B visas for their first jobs and eventually became citizens. Almost all have been very successful. Their experience is not unique. Research shows the foreigners who come to the US as students or on H-1B visas tend to be much more productive than native-born workers. They increase employment, get patents, start businesses and raise US productivity. Firms that win the H1-B lottery (the number of visas is capped, and there is more demand than supply) are better funded.

In short, H-1B visa holders are among the most valuable of all migrant categories, and American universities offer some of the best advanced STEM training in the world. (…)

The executive order that President Donald Trump issued last week essentially ends the program by imposing a $100,000 fee on each new application.

H-1Bs are intended for migrants who have skills natives lack. Critics of the program argue that it enables firms to pay foreigners less: Since their visa status is tied to their job, they must accept the lower salary and can’t change jobs. (…)

As much as it might be nice to believe that the $100,000 fee will benefit native workers by effectively shrinking the number of skilled early-career foreign workers, it won’t. Despite being a leader in STEM research and graduate training, the US education system does not produce enough high-quality native STEM graduates. American students are falling behind because they don’t get adequate training. (…)

In the current environment, the only way for US industry to stay competitive in STEM fields is to import talent from abroad.

• Who Uses H-1B Visas the Most

Nearly two-thirds of H-1B visas go to people working in “computer-related occupations,” according to a recent government report to Congress.

Federal data from fiscal 2024 shows that people born in India accounted for 71% of approved H-1B petitions that year, while people from China accounted for almost 12%.

The U.S. caps new H-1B visas at 85,000 a year, just a sliver of the nation’s 171 million-strong civilian labor force, though employees of universities and other nonprofits are generally exempt. But the government issued nearly 400,000 H-1Bs in its 2024 fiscal year. Most of these were for people who were already in the U.S., to cover situations like workers who sought extensions or switched jobs.

These visas usually last up to three years and are for people with specialized skills. Recipients need a Bachelor’s degree at a minimum and nearly half of them have a Master’s degree.

The biggest category of H-1B visa holders includes skilled jobs in fields like computer and management consulting services, engineering and scientific research.

AI CORNER

An $800 Billion Revenue Shortfall Threatens AI Future, Bain Says

Artificial intelligence companies like OpenAI have been quick to unveil plans for spending hundreds of billions of dollars on data centers, but they have been slower to show how they will pull in revenue to cover all those expenses. Now, the consulting firm Bain & Co. is estimating the shortfall could be far larger than previously understood.

By 2030, AI companies will need $2 trillion in combined annual revenue to fund the computing power needed to meet projected demand, Bain said in its annual Global Technology Report released Tuesday. Yet their revenue is likely to fall $800 billion short of that mark as efforts to monetize services like ChatGPT trail the spending requirements for data centers and related infrastructure, Bain predicted. (…)

The increasing popularity of services such as OpenAI’s ChatGPT and Google’s Gemini, as well as AI efforts by companies across the planet, means demand for computing capacity and energy is rising at a rapid clip. But the savings provided by AI and companies’ ability to generate additional revenue from AI is lagging behind that pace.

“If the current scaling laws hold, AI will increasingly strain supply chains globally,” said David Crawford, chairman of Bain’s global technology practice.

OpenAI is losing billions of dollars a year and prioritizing growth over profit, but it does expect to be cash-flow positive by 2029, Bloomberg has reported. (…)

The biggest tech firms including Microsoft Corp., Amazon.com Inc. and Meta Platforms Inc. will ramp up their combined annual spending on AI to more than $500 billion by early next decade, according to Bloomberg Intelligence. (…)

Global incremental AI computing requirements could soar to 200 gigawatts by 2030, with the US accounting for half that, Bain said. While breakthroughs in technology and algorithms could ease the burden, supply chain constraints or insufficient power supply could thwart the progress, Bain said.

Besides spending on computing capacity, leading AI companies are investing massive amounts in product development. Autonomous AI agents, which can perform multi-step tasks like humans, with limited guidance, are one area of focus. Over the next three to five years, companies are set to allocate as much as 10% of tech spending to building core AI capabilities including agent platforms, Bain estimates.

Beyond AI services, Bain said in its annual tech report that it anticipates growth in areas such as quantum computing. The emerging technology could unlock $250 billion in market value across industries from finance, pharmaceuticals, logistics, and materials science, it said.

While some expect a single quantum breakthrough, Bain sees a gradual curve with early adoption in narrow domains within the next 10 years and broader adoption over time.

Humanoid robots are attracting capital and becoming more prevalent, yet deployments are at an early stage and heavily rely on human supervision, Bain said. Commercial success will depend on ecosystem readiness, and companies that pilot robots early are set to lead the industry, the consultancy said.

The complete Bain report is here.

Miran Is Contradicting Himself on the Case for Big Rate Cuts

In a speech at the Economic Club of New York, he claimed that the US economy’s “neutral rate” has dropped significantly and that, therefore, current interest rates are unduly restrictive, risking higher unemployment. Does Miran really believe that? Or is he providing a rationalization for the president’s long-desired rate cuts? (…)

Miran’s basic argument is that a confluence of immigration, tax and trade policy shocks are producing an inflation-adjusted neutral rate — or r-star, in economics jargon — that is 1 to 1.2 percentage points lower than it had been, meaning it’s close to zero. Taking that assumption as given, Miran concludes that the appropriate level of the fed funds rate could be around 2%-2.5% and, thus, “monetary policy is well into restrictive territory.”

But this line of reasoning is inconsistent with what Miran himself argued prior to taking his job in government.

Consider a Barron’s essay that Miran co-wrote in March 2024 in which he argued the exact opposite of what he said on Monday. Specifically, Miran and co-author Sander Gerber made the case that neutral rates had “crept higher,” citing estimates by the Bank for International Settlements that put the rate at as much as 1.5 percentage points in real terms, meaning that interest rates were actually easier than policies makers realized.

The Miran-2024 argument hinged in part on the end of an era of hyper-globalization. The essay posited that the proceeds from Chinese exports had been recycled into US markets, creating a “global savings glut” and driving down rates.

But, globalization was going into reverse and a new era of conflict was emerging in its place. “Wars and the proliferation of sanctions and tariffs incentivize firms to invest in supply-chain resilience over efficiency, which requires capital expenditures and boosts neutral,” Gerber and Miran wrote.

Today, that’s more true than ever, thanks to Trump’s sweeping global levies and new kinetic conflicts around the world. Rising security concerns have led governments to ramp up defense spending, including the proposed Golden Dome defense system in the US.

The 2024 essay also relied on a series of other factors that are as true today as they were 18 months ago, including a boom in capital-intensive hardware spending to power the artificial intelligence revolution, and the fact that many US households enjoyed fixed-rate mortgages locked in around 4% or below.

The authors worried that large fiscal deficits (then running at around 5.8% of GDP) were working at cross-purposes with Fed efforts to cool the economy. Deficits are a very comparable 6.2% of GDP now, with Trump’s signature tax legislation all but guaranteeing budget shortfalls as far as the eye can see.

In his Monday speech, Miran makes the case that tariff revenue constitutes a boost to our fiscal fortunes, but that’s controversial to say the least.

For starters, the Supreme Court needs to uphold the legality of most of the existing tariffs. Second, many economists project that the duties, if sustained, would make the economy less productive, potentially weighing on total tax revenue. Lower productivity growth may, of course, put downward pressure on neutral rates — so there are a lot of countervailing forces here. Lastly, tariffs are demonstrably pushing up reported inflation, a reality that Miran conveniently denies.

So what has legitimately changed? Miran correctly notes that net migration has swung from substantially positive under President Joe Biden to something much lower than that. Arithmetically, that seems to account for around a third of the drop in r-star under Miran’s model. Among other things, he highlights the possibility that fewer immigrants could dampen rents and ultimately weigh down inflation — a conclusion that is based on a 2003 paper about a very specific episode that unfolded in Miami in 1980, the Mariel boatlift.

Meanwhile, Miran gives short shrift to the many inflationary cross-currents from the Trump immigration shock. Among other things, economists still don’t know whether the scramble for labor will, at least temporarily, push up wages and, therefore, prices, including in areas such as housing!

While Miran’s speech falls flat on his own terms, there is another even broader issue at the heart of his argument: It’s rarely wise to make policy on the basis of judgments about r-star. While economists have developed fancy models to estimate “neutral,” most monetary policy practitioners acknowledge that it’s almost impossible to observe in real time with a high degree of accuracy — a theme that Fed Chair Jerome Powell has repeatedly highlighted dating back to his first major policy speech in 2018. In that context, Powell has emphasized the need to stay humble and watch the evolving data. (…)

Judging by the Fed’s most recent survey, Miran may not be alone in his belief that the neutral rate is substantially lower than where policy rates are today. He is, however, alone in demanding that rates move toward neutrality very, very quickly. If that’s not an effort to justify Trump’s stated desire for lower interest rates, then it’s something almost as bad: a sign of extraordinary hubris from a brand new Fed governor speaking a week after confirmation.

Trump’s playbook metastasizes:

Taiwan Curbs Chip Exports to South Africa in Rare Power Move

Taiwan has imposed restrictions on the export of chips to South Africa over national security concerns, taking the unusual step of using its dominance of chip markets to pressure a country that’s closely allied itself with China.

Taiwan now requires pre-approval for the bulk of chips sold to the African nation, its trade regulator said in a statement. The decision emerged after Pretoria tried to downgrade Taipei’s representative office and force its move to Johannesburg from the capital, Taiwan’s foreign ministry has said.

The move reflects both the island’s economic clout and a growing frustration with getting sidelined by Beijing in the diplomatic community. Taiwan Semiconductor Manufacturing Co. makes the majority of the world’s most sophisticated chips, essential to cars, AI and industrial production. (…)

“The South African government’s actions have undermined our national and public security,” Taiwan’s International Trade Administration said in a statement. “We are adopting measures to restrict trade to maintain our sovereignty.”

There’s a plan:

Trump Cancels Trail, Bike-Lane Grants Deemed ‘Hostile’ to Cars

The Trump administration canceled grants for street safety measures, pedestrian trails and bike lanes in communities around the country this month, each time offering a simple rationale for yanking back federal aid: the projects aren’t designed for cars. (…)

Transportation Secretary Sean Duffy has regularly heaped scorn on major transit systems, including New York’s Metropolitan Transportation Authority, and signaled that the department would prioritize projects that are designed around automobiles. (…)