Global manufacturing output, new orders and employment all return to growth in August

The J.P.Morgan Global Manufacturing PMI® rose to 50.9 in August, from 49.7 in July, to signal a slight improvement in operating conditions. Production increased for the second time in the past three months in August, with the rate of expansion accelerating to a 14-month high. (…)

Manufacturing new orders rose for the only the second time in the past five months in August (…). Panel members reported that tariff concerns continued to weigh on international trade flows, with new export business contracting for the fifth month in a row. (…)

Price pressures ticked higher in August, with rates of increase in input costs and selling prices accelerating to six and four-month highs respectively. Inflationary pressure was especially marked in the US, which saw the steepest raise in output charges and the second-fastest increase in input costs (behind Romania) of the nations covered.

USA: Surge in production underpins strongest improvement in manufacturing performance since May 2022

S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI^®), posted 53.0 in August. That was up from 49.8 in July and marked the strongest improvement in operating conditions since May 2022.

A surge in manufacturing production was signaled during August, with production rising to its steepest degree since May 2022. Growth reflected a combination of higher new orders and inventory building.

On the demand side, new work placed at US manufacturers rose for an eighth successive month, with growth improving noticeably since July, when order book gains broadly stalled. However, the increase in new work was principally domestic focused as international sales declined marginally for a second month in a row. Tariffs and associated trade uncertainty were again reported to have weighed on foreign demand.

With output rising more quickly than new work, firms were subsequently able to build their inventories of finished goods. Growth was solid and the sharpest in 13 months. Inventory accumulation was in part reflective of worries over future price developments and possible supply constraints in the months ahead.

Indeed, on the price front, input cost inflation accelerated in August and was the second-sharpest in the past three years (surpassed only by June). Tariffs were overwhelmingly reported to have pushed up operating expenses over the month and, wherever possible, were passed on to clients through an upturn in selling prices. Although still lower than June’s near three-year record, output price inflation remained substantial and well above trend.

On the supply-side, average lead times improved marginally in August amid some evidence of increased vendor capacity. Delivery times shortened despite a further increase in demand from US manufacturers, with purchasing activity reported to have risen (albeit slightly) for a fourth month in a row. There remained some evidence of higher buying to help bolster input stocks, which rose in August. Growth was however marginal and noticeably slower than May’s survey record increase.

Despite survey respondents commenting on an uncertain business outlook, especially around tariffs, overall confidence about future output improved since July. Demand, especially from domestic markets, was seen as picking up in the year ahead. Plans to invest in new plants and product lines were also noted by some manufacturers.

Some positivity regarding future production, alongside a rise in present sales, led to an increase in staffing levels during August. Growth was solid and not far off June’s near three-year high. Nonetheless, capacity remained under some pressure as signaled by the steepest rise in backlogs of work since September 2022.

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

“Purchasing managers reported that the US manufacturing was running hot over the summer.

“The upturn is in part being fueled by inventory building, with factories reporting a further jump in warehouse holdings in August due to concerns over future price rises and potential supply constraints. These concerns are being stoked by uncertainty over the impact of tariffs, fears which were underpinned by a further jump in prices paid for inputs by factories, linked overwhelmingly by purchasing managers to these tariffs. (…)”

The more widely followed and mediatized ISM survey remained weak however. Bloomberg headlined “Manufacturing shrinks again”

• August Marks Sixth Month of Contraction for Manufacturing ISM

The ISM manufacturing index rose to 48.7 in August, but remained consistent with contraction in the sector for the sixth-straight month. In one line — manufacturers continue to struggle in the face of uncertainty around tariff impacts. There was a level of pessimism across nearly all of the select industry comments, with respondents mentioning tariffs, including uncertainty around costs and sourcing concerns which are limiting new equipment spending.

(…) But new orders popped to 51.4 in August, the highest reading since the start of the year with eight industries reporting growth.

(…) the index reading is still consistent with a broad expansion in input prices with 15 industries reporting increased prices for raw materials last month. As seen in the nearby chart, this component is still running higher than where it averaged in the past two-or-so years ahead of the recent tariff-induced pop in input prices, and when you ask purchasing managers tariff-induced costs are a major challenge.

Source: Institute for Supply Management and Wells Fargo Economics

The employment component rose modestly to 43.8, but only two industries reported growth during the month with 13 reporting a drop and the trend decline in the employment index remains in place. The release sums up the current employment situation well, “For every comment on hiring, there were four on reducing head count as companies continued to focus on accelerating staff reductions due to uncertain near- to mid-term demand.”

(…) One respondent from the Computer & Electronic Products industry mentioned, “Tariffs continue to wreak havoc on planning/scheduling activities … Plans to bring production back into U.S. are impacted by higher material costs, making it more difficult to justify the return.”

Another respondent from the Electrical Equipment, Appliances & Components industry mentioned layoffs of high-skilled workers. Uncertainty around tariff policy is limiting activity. While the higher costs associated with tariffs are a challenge, the uncertainty around where tariffs ultimately land is likely more-so limiting current activity today.

I side with S&P Global’s more upbeat survey, helped by 82% of S&P 500 industrial companies beating estimates in Q2 with earnings up 4.2% on revenues up 4.3%. Q3 earnings are forecast up 16.7%, inconsistent “with contraction in the sector for the sixth-straight month.”

Later this morning we get the Services PMIs where S&P Global data was also much stronger than the ISM last month.

Canada: Downturn in manufacturing sector continues to ease during August

Canada’s manufacturing economy remained inside contraction territory during August, with output, new orders and employment all declining since July albeit at noticeably slower rates compared to earlier in the year. A lack of demand, especially from international markets due to tariffs, was again widely noted by manufacturers. Tariffs also continued to underpin inflationary pressures, with prices rising to a stronger degree than in July, whilst custom delays and logistical challenges led to a further lengthening of lead times.

US clients remained a key source of lower overall international sales in August.

On the price front, tariffs were overwhelmingly mentioned as having raised the cost of inputs, with metals like aluminum and steel especially impacted. Input price inflation overall was at its highest level for three months, and firms were keen to pass these on to clients wherever possible. This was reflected in a slightly firmer rise in output charges compared to July.

Confidence in the future meanwhile improved but remained well below trend. Continued uncertainty in the outlook, plus present sales weakness, led firms to make further cuts to employment and purchasing activity.

ASEAN manufacturers register strong output growth in August

Following signs of broadly stabilising operating conditions in July, as indicated by the S&P Global ASEAN Manufacturing Purchasing Managers’ Index™ (PMI®) registering 50.1, August saw the index rise to 51.0. The health of the manufacturing sector improved modestly, but to the strongest degree in six months.

The rise in the headline index was supported by a solid and stronger increase in production, as well as a renewed, albeit a modest uptick in new orders. Output has now risen for a second consecutive month, with the rate of growth in August the fastest since mid-2024. Additionally, the fresh uptick in new orders effectively ended the previous four-month sequence of decrease. (…)

Services PMIs

Eurozone economy continues to grow at a sluggish pace

The HCOB Eurozone Services PMI Business Activity Index dipped from July’s four-month high of 51.0 to 50.5, signalling a slower and marginal increase in output in August.

Demand for eurozone services was virtually flat, with the respective index posting only fractionally above the 50.0 no-change level. New business from overseas was a stronger drag on sales performances midway through the third quarter as new export orders fell at the fastest pace in three months. (…)

The seasonally adjusted HCOB Eurozone Composite PMI® Output Index ticked up to a one-year high of 51.0 in August, from 50.9 in July. The latest data point extended a run of above 50.0 prints seen since the start of the year, although the pace of expansion signalled remained muted. Growth was held back by the service sector, which posted a marginal and slower upturn. Manufacturing, on the other hand, saw its strongest rise in production in almost three-and-a-half years.

Of the eurozone nations with Composite PMI data available, August’s survey results indicated that Spain was the fastest-growing economy, despite the pace of expansion easing. Growth slowdowns were likewise seen for Ireland and Germany, whereas Italy recorded a slightly faster upturn. France remained the weakest-performing eurozone economy, although there were signs of stabilisation as the Composite Output PMI rose to a 12-month high to post only narrowly below the 50.0 no-change threshold.

There was an improvement in demand conditions for eurozone businesses in August as new orders increased for the first time since May 2024. Factory sales were the principal driving force as new work received by services companies was up only fractionally on the month. Subsequently, the overall rate of expansion was marginal.

New business growth reflected domestic market movement, underlying data suggested, as new export orders shrank in August to extend the current sequence of deteriorating international demand to three-and-a-half years. Furthermore, the latest contraction was the quickest since March.

With activity growth outstripping that for new business, eurozone companies made additional inroads into their backlogged work midway through the third quarter. That said, the rate of depletion was the softest for almost two-and-a-half years and only slight.

The hiring trend seen since March continued into August, with private sector employment in the euro area rising for a sixth consecutive month. The rate of employment growth also ticked up to a 14-month high. The improvement at the composite level reflected stronger hiring at services firms as factory workforce numbers shrank further.

Business confidence was broadly unchanged since July, ticking down a fraction. This nevertheless brought it to its lowest level in three months. On balance, eurozone companies were optimistic of growth over the next 12 months, but the degree of positivity was below its long-term average.

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• ECB’s Kocher Advocates Caution Ahead of Next Decision
• ECB’s Next Move Could Be to Cut or Hike Rates, Dolenc Says

China: Services activity growth accelerates to solid pace in August

The headline RatingDog China General Services Business Activity Index rose to 53.0 in August, up from 52.6 in July. Posting above the 50.0 neutral mark, the latest reading indicated another expansion of services activity in China, thereby extending the current period of growth that began in January 2023. Furthermore, the rate of increase was the fastest seen since May 2024 and solid.

Central to the latest upturn in services activity was a stronger rise in new business. The rate of new order growth accelerated for a second successive month and was likewise the steepest seen since May 2024. This was partly supported by a stronger rise in new export business, which increased at the fastest rate since February. Comments from panellists often mentioned successful business development efforts, improvements in market conditions and increased tourism as key drivers of sales growth.

In addition to spurring growth in services activity, the latest uptick in new business also contributed to another accumulation of outstanding business in August. This marked the fifth time in as many months in which backlogs of work have expanded, with the rate of growth quickening from July.

Despite rising workloads, Chinese service providers signalled a fresh fall in staffing levels in August. Headcounts have now fallen in two of the past three months, with the latest reduction attributed to both the non-replacement of job leavers and redundancies, partly due to concerns over costs.

Indeed, average input costs continued to increase in August on the back of higher wages and raw material costs, according to panellists. This marked the sixth successive month of cost inflation, though the latest upturn was only fractional. Against a backdrop of intense market competition, services firms opted to absorb cost increases and lowered their output charges to support sales.

Business sentiment regarding the one-year outlook remained positive across the service sector in August, with the level of confidence unchanged from July and the joint-highest in five months. Companies often hoped that better market conditions and internal growth plans would stimulate business activity growth in the year ahead.

The Composite Output Index posted above the 50.0 no-change threshold at 51.9 in August, up from 50.8 in July. This indicated that overall output increased for a third straight month and at the quickest pace since last November. Growth was broad-based by sector, and led by services.

How Tariffs Hurt My American Factory Some of my rivals that produce overseas will be less hard-hit.

(…) Matouk is an American maker of luxury bed and bath linens, founded by my grandfather in 1929. While much of our industry has abandoned domestic production, we have built a profitable production operation in Fall River, Mass., where we have nearly 200 manufacturing employees.

Ironically, these new, steep tariffs will damage our domestic manufacturing operation and make us less competitive than some rival companies that rely only on foreign production. Over the past 20 years, we have invested consistently in our American operation, which depends on a global supply chain that delivers material and equipment for production to Fall River.

These fabrics and machines aren’t available in the U.S. and, in my opinion, never will be. The majority of our competitors produce their goods entirely abroad and often in countries that are now more tariff-favored than India, where we buy many of our inputs. This means our American-produced goods are at a disadvantage, due to tariffs.

To supplement our domestically made product line, we also import products that are impossible to manufacture economically in America (by us or anyone else) because the skills and materials don’t exist here or because the costs are too high. (…)

There’s no way our overseas manufacturers can absorb these high taxes—which is what tariffs are. (…)

American manufacturers and importers must shoulder almost the entire burden. While we have borne these costs since Liberation Day in hope that the administration would choose a more reasonable policy by the Aug. 1 implementation deadline, we now reluctantly have to raise our prices to protect our business.

(…) we’re being punished for sticking with U.S. manufacturing—as are our employees, the businesses we sell to, and ultimately American consumers, who share in the cost of these higher taxes. (…)

U.S. Curbs TSMC’s Shipments of Chip Supplies to China The authorization will be revoked effective Dec. 31

Taiwan Semiconductor Manufacturing Co. said the U.S. is revoking its authorization to freely ship key equipment to its main Chinese chip-making site, a move that will make it harder for the company to operate in China.

The U.S. government informed TSMC of the removal of its “validated end user” status for its Nanjing site effective Dec. 31, the company said. The status allows TSMC to import American chip-making equipment for its existing China-based facilities without having to seek separate U.S. approval.

“While we are evaluating the situation and taking appropriate measures, including communicating with the U.S. government, we remain fully committed to ensuring the uninterrupted operation of TSMC Nanjing,” the company said. (…)

“The bigger story is Washington’s intent—this isn’t about today’s profits, it’s about freezing China’s chip capacity over the long term,” said Charu Chanana, chief investment strategist at Saxo Singapore.

The Biden administration first granted the waivers to foreign chip makers operating in China, including TSMC, Samsung Electronics and SK Hynix, after imposing restrictions on China’s semiconductor industry in 2022.

The Commerce Department said Friday that the authorization for Samsung’s and SK Hynix’s China plants will be revoked effective Dec. 31.

Former participants of the VEU program “will need to obtain licenses to export their technology, putting them on par with their competitors,” it said.

The Commerce Department added that it intends to grant export licenses to allow the companies to operate their existing facilities in China, but doesn’t intend to grant licenses to expand capacity or upgrade the plants’ technology. (…)

The three companies are among the few foreign chip makers with sizable China-based production sites. The U.S. move could make it harder for them to operate effectively in China over time, analysts said. (…)

The curb would further limit China’s access to semiconductors made by foreign vendors, with Chinese memory makers benefiting from an upside in demand, Citi Research analyst Kevin Chen said in a recent note.

“Each new restriction forces China to double down on homegrown innovation,” Saxo’s Chanana said. “The risk for the U.S. is that the very pressure meant to constrain Beijing may end up accelerating the race for self-sufficiency in chips.”

Bond Traders Sing the Blues Heavily indebted governments are increasingly vulnerable to bond vigilantes.

Pity the bond traders of the world, who after Tuesday must wish they’d stayed on their late-summer vacations. A global rout in sovereign debt greeted Wall Street’s return to the office, and the only folks suffering more heartburn than those traders are the poor saps tasked with managing national treasuries.

The trouble started in Europe. Yields on 10-year German, French, Italian and Dutch government debt (among others) all surged. Britain’s 30-year gilt at 5.7% hit a level not seen since 1998. In the U.S., the 10-year Treasury yield at less than 4.3% remains reassuringly below its heights earlier this year, but the 30-year is nearing 5%.

It’s easy and not entirely wrong to blame this on investors’ recognition that most governments are borrowing far too much today and confront mammoth social-spending commitments in the future. But this isn’t news.

Even the political instability in France and policy cluelessness in the United Kingdom on display have been there for all to see for a long time. The only discernible fiscal “surprise” in recent days was the prospect in the U.S. that a court ruling against President Trump’s tariffs could cut off that revenue stream.

A more likely trigger for Tuesday’s bond selloff is renewed concern over inflation. Prices rose an unexpectedly rapid 2.1% year-over-year in the eurozone in August, data released Tuesday showed. Yet the European Central Bank, like the Federal Reserve and Bank of England, seems unlikely to act aggressively if it turns out the postpandemic inflation isn’t entirely beaten. Investors may start assuming that somewhat higher inflation will be with us in most places for the foreseeable future. (…)

Rejoice, we have true bond markets again.

The bigger problem is that the enormous debt burdens of Western governments leave their fiscs exposed to market swings. A warning emerged from the U.K. on Tuesday. The government sold a record £14 billion of 10-year gilts at around 4.88%, the highest yield since 2008. As politicians borrow more to fund current expenditure, they must do so at higher interest rates.

Ditto the existing pile of debt, which must be rolled over from time to time. This is one reason the U.S. Treasury under Secretary Scott Bessent is issuing more lower-rate, short-term bills. It’s becoming normal for debt-service costs to exceed defense budgets.

A one-day bond selloff isn’t cause for panic, and for the most part Tuesday’s isn’t. But politicians’ enthusiasm for debt-fueled spending could one day transform a routine down day in the bond market into a fiscal crisis. Be grateful that we’re probably not there—yet.

US Consumers Remain Resilient

Rebound in Durable Goods Lifts Consumer Spending

Real consumer spending rose 0.3% in July to notch its best month since the pre-tariff surge in March. The intervening months had been soft owing to an air pocket in spending on durable goods. Spending on these big-ticket items was flattish in April before posting back-to-back declines in May and June, raising concerns about the tariff impact on durable goods spending.

Those worries may fade a bit after today’s report showed durable goods spending rebounded in July rising 1.9% in the month. That’s the best monthly pick-up since the pre-tariff surge of 3.9% in March.

Most of the spending increase in July was attributable to spending on motor vehicles and parts where spending has been whipsawed amid tariff pricing concerns. Beyond autos, durable goods spending was more modest. Non-durable goods categories such as food, beverage and other non-durable goods generally outpaced durables categories.

We have argued that one largely unnoticed early manifestation of tariff impact on consumer spending is the trend decline in discretionary services categories. That remained intact here in July despite an otherwise solid report on consumer spending. Recreation services spending posted the smallest increase of any services category, and spending on food services and hotel accommodations were in decline in July.

One third of the $108.9B increase in spending was in “motor vehicles and parts”, a volatile category showing no real growth since 2015. Americans, faced with car prices 25% above pre-pandemic levels, are replacing their old cars only when offered attractive incentives and/or financing terms. Absent these, they manage their monthly payments by extending their liabilities.

Once rare, seven-year car loans are fast becoming the norm. They’re often the only way buyers can afford new rides, with average sale prices surging 28% in five years to approach $50,000. Compared to a five-year loan, they can make the difference between a $1,000 monthly payment and a $780 one. (Bloomberg)

More than half of new car loans are 6 or 7 years. A bet against rapid technology advancements.

The normally resilient services spending category has stalled since last December (+0.4% in 7 months) in spite of rising labor income (+1.2%). This is a picky consumer, a radical change from 2024.

The good news is that labor income keeps rising around 5.0% YoY while PCE inflation seems stuck at 2.6%. More importantly, there is no squeeze from essentials: PCE-Food is up 1.9% YoY and PCE-Energy is down 2.7%, more than offsetting rentflation of 3.5%.

Wages and salaries jumped 0.6% MoM in July. Last 3 and 6 months: +4.9% annualized.

The next employment report comes Friday. Jerome Powell said at Jackson Hole that, thanks to lower immigration, 100k job gains are the breakeven monthly pace needed to keep the unemployment rate steady. Last 3 months: +35k/m on average, down from 168k/m in 2024.

Powell, justifying his increased dovishness:

Labor supply has softened in line with demand, sharply lowering the breakeven rate of job creation needed to hold the unemployment rate constant. Indeed, labor force growth has slowed considerably this year with the sharp falloff in immigration, and the labor force participation rate has edged down in recent months.

Labor stats have been rather volatile this year, with meaningful revisions, making them less dependable for a data dependent Fed. Note the soft period in the summer of 2024, followed by strong employment growth in the following 4 months.

Interestingly, private employment has held up better in the most recent softening than in the summer of 2024.

Indeed Job Postings troughed in mid July and bounced 2.1% through August 22.

S&P Global’s flash August PMI surveys were broadly strong:

• Total output in the latest two months saw the strongest back-to-back expansions since the spring of 2022, in both manufacturing and services.
• New order inflows in the goods-producing sector also picked up in August, with growth hitting the highest since February 2024 principally on the back of rising domestic demand but also helped by the largest rise in goods exports for 15 months.
• The pace of job creation hit the highest since January (and one of the strongest rates seen for over three years). Service providers took on staff at the fastest pace for seven months while factory job gains reached the highest since March 2022.
• Uncompleted orders rose for a fifth consecutive month, rising in August at a pace unsurpassed since May 2022 reflecting stronger demand and near-term capacity constraints at some companies. Backlogs rose at an unchanged and therefore joint-steepest rate since May 2022 in the services economy, while manufacturing backlogs also rose to the greatest extent in over three years.
• Companies’ expectations about output in the year ahead rose to a two-month high in August.

We will find out this week if the more widely followed ISM surveys rebound from their weak July readings. My bet is they will. If so, the odds of a September 17 rate cut could drop and narratives change abruptly.

FYI:

• Friday’s Atlanta Fed’s GDPNow model tracked Q3’s real GDP growth rate at 3.5%, up from 2.2% and vs 3.3% during Q2.
• Ed Yardeni: “The CME FedWatch Tool indicated that the latest probability of a 25-basis-point Fed rate cut at the September 17 meeting of the FOMC is 86.4%. Our subjective odds are 40%. Friday’s data supported our none-and-done-in-2025 stance based on our view that the economy doesn’t need a rate cut, especially with inflation closer to 3.0% y/y than the Fed’s 2.0% target.”
• Goldman Sachs:

• “The equal-weighted S&P500 typically outperforms the cap-weighted when the Fed cuts rates… so further rate cuts would be supportive of the bullish broadening theme (catch-up, rotation, broadening out of the bull market).” (Callum Thomas)

Source:  Daily Chartbook

• Powell: “Measures of longer-term inflation expectations, however, as reflected in market- and survey-based measures, appear to remain well anchored and consistent with our longer-run inflation objective of 2 percent”

Consumers inflation expectations seem indeed well anchored, but in the 3.5-4.0% range for the next 5 years (U. of Michigan). Markets are more hopeful at 2.4%, thanks largely to oil prices as Goldman Sachs illustrates:

Consumer one-year expectations are also largely influenced by gasoline prices but tariffs are currently scaring people. Investors expect tariffs to have but a temporary impact.

If gold is an inflation hedge, gold prices must reflect inflation expectations. There seems to be a lot more than inflation fears currently (geopolitics, USD, central banks buying, China …)

(MacroMicro)

 

Back to the oil price relationship, you can now buy 50 barrels of oil with one once of gold, well above the 30 barrels historical highs

Gold to Oil Ratio

(Macrotrends)

Low oil prices are thus keeping inflation expectations low per Goldman’s chart above. But gold investors now want a lot more oil than before per once of gold. Gold/oil broke 30 after Russia invaded Ukraine, which is also when gold reserves began to deviate from trends per Ed Yardeni’s charts. Spring 2024 is also when oil prices peaked before cratering 30%.

In this puzzle, the one piece that sticks out is gold-backed ETF demand, particularly from the US and China, which bounced back in H2’24 and sharply accelerated in 2025 in spite of rising gold prices.

This monthly chart shows the trend reversal in June 2024 and the sharp demand increase in January-April 2025, slowing somewhat since. Clear signs of speculation and momentum investing by price insensitive buyers.

The more price sensitive central banks reduced their purchases by 33% QoQ in Q2’25. Total H1 buying of 415t was 21% less than H1’24 (525t) and the lowest H1 total since 2022.

MANUFACTURING PMIs

Eurozone factory output growth at 41-month high in August

The HCOB Eurozone Manufacturing PMI® rose from 49.8 in July to 50.7 in August. This marked the first monthly improvement in operating conditions for goods producers in the single currency union since June 2022.

The main bulk of the euro area registered expansionary Manufacturing PMI readings midway through the third quarter. The exceptions were Austria and Germany, although the largest economy of the bloc posted a 38-month high and signalled broadly stable factory operating conditions. Austria’s manufacturing downturn also eased and was only marginal. Greece topped the growth rankings and was closely followed by Spain, with both nations registering strong upturns in August. Modest improvements were seen in the Netherlands and Ireland, while both France and Italy saw renewed (albeit only slight) expansions.

A sixth successive monthly increase in production was recorded in August. The rate of growth picked up markedly on the month to the quickest since March 2022. Spurring a faster rise in output was a renewed pick-up in demand conditions. Total new order volumes rose for the first time in close to three-and-a-half years, although this was reflective of a better domestic sales environment as the latest survey data signalled further (and faster) decline in exports.

Still, despite increased new order intakes, operating capacities were not placed under greater strain. This was evidenced by thirty-ninth successive monthly reduction in backlogs of work. Job cutting continued across the eurozone manufacturing sector, but the latest decrease in employment was only marginal overall and among the softest seen over the current 27-month sequence.

Eurozone manufacturers remained in stock-cutting mode during the latest survey period. Both pre- and post-production inventories were reduced, and in both cases to the quickest extents since March. Purchasing activity also fell more rapidly, although the rate of decrease was weak by comparison to the trend seen over the last three years. Pressures on supply chains nevertheless intensified as average input lead times lengthened to the most marked degree since November 2022.

As for prices trends, eurozone manufacturers saw operating expenses increase for the first time in five months, although the uptick was only marginal. Prices charged were discounted fractionally.

Finally, eurozone goods producers looked to the next 12 months with optimism, but there was little change in sentiment when compared with July. Overall, growth expectations held just above their long-term average in August.

China: Manufacturing sector conditions improve at quickestpace in five months

The headline seasonally adjusted Purchasing Managers’ Index™ (PMI) posted 50.5 in August, up from 49.5 in July. Rising above the 50.0 no-change threshold in August, the latest figure signalled that manufacturing sector conditions improved midway through the third quarter of the year. Although marginal, the rate of improvement was the quickest in five months.

Rising new orders supported a renewed expansion of manufacturing output in August. This marked the second time in the past three months in which output has increased, though the upturn was only marginal. Better underlying demand conditions and successful promotional efforts underpinned the latest rise in new orders, according to panellists. Though modest, the rate of new order growth was the quickest seen since March. Companies signalled that the improvement in sales was largely driven by firmer domestic demand, as new export orders fell slightly.

Stronger inflows of new orders also led to a renewed accumulation of backlogged work in August. The rate at which unfinished business increased was the quickest in six months. Despite greater capacity pressures, manufacturers remained cautious with regards to their staffing levels, opting instead to shed staff for a fifth consecutive month.

Purchasing activity increased for a second consecutive month amid higher new orders and production. Anecdotal evidence suggested that some Chinese manufacturers were keen to stockpile in the latest survey period. Holdings of raw materials and semi-finished goods rose at the quickest pace since November 2020.

Stocks of finished goods also accumulated midway through the third quarter. This was attributed to both growth in production and delays in outbound shipments. At the same time, lead times for inputs continued to lengthen in August, albeit only fractionally, amid reports of shipping delays and logistics constraints.

Prices data showed that average input costs rose for a second successive month in August. The rate of inflation was the steepest since November 2024 but remained below the series average. Higher raw material costs were cited as a key reason for the latest increase in expenses.

To help cope with rising costs, some manufacturers raised their output charges while others were limited in their ability to pass on higher expenses due to intense competition. As a result, average selling prices were unchanged in August following an eight-month period of decline. On the other hand, export charges continued to increase on the back of rising transport costs.

Overall, sentiment regarding the one-year outlook for output in the Chinese manufacturing sector remained positive in August. Goods producers were the most upbeat since March amid hopes that economic conditions will improve, and that company expansion plans will help to drive new sales in the next 12 months.

• Both official manufacturing and non-manufacturing PMIs edged up in August

The NBS manufacturing PMI headline index edged up to 49.4 in August from 49.3 in July. Among major sub-indexes of NBS manufacturing PMI, the output sub-index increased to 50.8 from 50.5, the new orders sub-index edged up to 49.5 from 49.4, while the employment sub-index inched down to 47.9 from 48.0.

NBS commented that the output and new orders sub-indexes of pharmaceuticals and computer, communication, and other electronic equipment were notably higher than the overall manufacturing sector in August. However, the output and new orders sub-indexes of textiles, apparel and accessories, wood processing and furniture, and chemical raw materials and products sectors were below 50 in August.

On the trade-related sub-indexes, the manufacturing new export order sub-index edged up to 47.2 in August (vs. 47.1 in July). The import sub-index also inched up to 48.0 from 47.8.

Price sub-indexes suggested deflationary pressures continued to ease in August. The input cost sub-index increased to 53.3 (vs. 51.5 in July). The output prices sub-index also rose to 49.1 (vs. 48.3 in July). NBS commented that the input cost and output price indexes of ferrous metal smelting and rolling processing, and metal products sectors rose above 52 in August.

The official non-manufacturing PMI (comprised of the services and construction sectors) inched up to 50.3 in August (vs. 50.1 in July). The services PMI rose to 50.5 (vs. 50.0 in July). According to the survey, the PMIs of railway/water transportation, telecommunications, radio, television and satellite transmission, and capital market services sectors were above 60 while the PMIs of retail and real estate services sectors were below 50 in August.

The construction PMI fell notably in August to 49.1 (vs. 50.6 in July), which marked the lowest point since the initial outbreak of COVID in early 2020. NBS noted that construction activity slowed down in August due to recent adverse weather conditions such as persistent high temperatures and heavy rain in some regions.

Overall, several patterns shown in August official PMIs are similar to those in the July prints. For example, adverse weather conditions continued to negatively affect the August NBS PMIs (e.g., the construction PMI fell below 50). Additionally, increased government focus on overcapacity and excessive price competition helped to alleviate deflationary pressure, as reflected in the increased price sub-index within the official manufacturing PMI. (GS)

Japan: Operating conditions deteriorate slightly in August

The headline S&P Global Japan Manufacturing Purchasing Managers’ Index™ (PMI^®) rose from 48.9 in July to 49.7 in August, to signal a slower and only marginal deterioration in business conditions. Nevertheless, the health of the sector has now weakened in 13 of the past 14 months.

Underlying data revealed that a deterioration in business conditions at intermediate goods makers offset improvements at producers of consumer and investment goods.

Latest survey data signalled a back-to-back monthly decline in manufacturing production across Japan. That said, the rate of contraction eased to a fractional pace that was slower than the average seen in 2025 to date. Where lower production was reported, this was generally attributed to lower amounts of new work.

Measured overall, new business fell at a modest pace that was unchanged from July. Companies often commented that subdued market conditions had weighed on customer demand. New business from overseas was an area of particular weakness, with new export sales declining at the sharpest pace since March 2024. Reduced orders from key markets such as Europe, China and the US were noted by panel members.

Manufacturers downwardly adjusted their purchasing activity again in August, with the rate of reduction solid overall. Companies also maintained a cautious approach to their inventory levels, with both stocks of purchases and finished goods also declining again in August.

Supply chain performance meanwhile deteriorated again midway through the third quarter. Though marginal, the rate at which delivery times increased was the most pronounced since last September.

Employment remained on an upward trend in August, with manufacturers in Japan adding to their payroll numbers for the ninth straight month. Though modest, the rate of job creation was above the series long-run trend. According to anecdotal evidence, companies added to their staffing levels to fill vacancies but also to prepare for future increases in customer demand.

Higher headcounts and lower amounts of incoming new work supported a further reduction in outstanding business in August. Furthermore, the rate of backlog depletion was the quickest seen since January and solid.

Average input prices continued to increase sharply in August. That said, the upturn was the second-slowest recorded in just over four-and-a-half years (after July 2024). A variety of factors had increased in cost, according to panellists, including raw materials, labour, utilities and transport.

Prices charged by Japanese manufacturers also rose in August. However, the rate of inflation was the weakest recorded since June 2021 and only modest. There were reports that intense market competition had restricted firms’ overall pricing power.

Although Japanese manufacturing firms remained confident that output will rise over the next year, the degree of sentiment slipped to a three-month low in August.

Canada: Second-quarter GDP hit hard by trade conflict

We now have the full picture for the first quarter in which U.S. tariffs were imposed, and it is far from reassuring. The Canadian economy posted its sharpest contraction since the pandemic, as the drop in exports far exceeded the decline in imports. As a result, trade made its largest negative contribution ever, with the exception of the temporary distortion caused by the pandemic.

Tariff uncertainty has also shaken business confidence, prompting firms to significantly reduce their investments. Non-residential investment fell by 10% on an annualized basis as investment in machinery and equipment plummeted by 33%, the fourth sharpest decline in history.

Despite this weakness in investment, domestic demand remained strong at 3.5% annualized. Per capita domestic demand grew at a comparable rate (3.3%) due to population stagnation, making this quarter the second strongest performance since 2022.

Households limited the damage during the quarter as residential construction picked up, but above all because consumption was solid (+4.5% ann.). There is reason to question the sustainability of this strength, given that it occurred despite sluggish growth in employee compensation, which led them to substantially reduce their savings rate for a third consecutive quarter.

(…) The downward revision of monthly GDP for June (preliminary was 0.1% and was revised to -0.1%) and the weak rebound in July lead us to believe that the economic weakness will continue into the third quarter. Moreover, yesterday’s labor market data points to a widespread deterioration in the labor market (link), which should limit consumption in Q3, especially as households grapple with an interest payment shock at current rate levels.

This economy seems in dire need of a trade agreement to give businesses greater visibility. In the meantime, the Bank of Canada can provide a little extra help while waiting for the federal government’s budget plans.

Eurozone Inflation Accelerates, Priming Continued Rate Pause by ECB Annual inflation inched up to 2.1%, but core prices rose at an unchanged pace

Consumer prices rose by 2.1% on year in August across the 20 nations that use the euro, European Union figures showed Tuesday. That marks an increase from the 2.0% rate of annual inflation booked in July. Core inflation, which strips out the more volatile shifts in the prices of energy and food, was unchanged at 2.3% on year last month. (…)

With inflation rising slightly above the ECB’s target, and the eurozone’s labor market holding up well despite global economic turmoil, the central bank looks very likely to keep its key interest rate in place at 2.0% when its rate setters meet in Frankfurt next week. Investors overwhelmingly expect the bank to stand pat on rates, according to data provided by LSEG Refinitiv. (…)

In Germany, Europe’s largest economy, annual inflation rose in August. But the rate eased in France and was stable in the eurozone’s other two largest economies, Italy and Spain, data last week showed. (…)

Eurozone inflation has remained close to the ECB’s target since early this year. Bank staff project the rate will dip to 1.6% on average in 2026 before returning to target the following year. (…)

• ECB Should Keep Rates Steady, Schnabel Tells Reuters
• ECB’s Simkus Hints at December Rate Cut, Econostream Says
• ECB’s Kocher Advocates Caution Ahead of Next Decision

South Korea’s Inflation Hits Nine-Month Low The benchmark consumer-price index rose 1.7% from a year earlier, softer than July’s 2.1% increase

EARNINGS WATCH

Simply remarkable in the current environment and inflation below 3%.

489 companies in the S&P 500 Index have reported earnings for Q2 2025. Of these companies, 79.6% reported earnings above analyst expectations and 15.7% reported earnings below analyst expectations. In a typical quarter (since 1994), 67% of companies beat estimates and 20% miss estimates. Over the past four quarters, 76% of companies beat the estimates and 18% missed estimates.

In aggregate, companies are reporting earnings that are 7.8% above estimates, which compares to a long-term (since 1994) average surprise factor of 4.3% and the average surprise factor over the prior four quarters of 6.3%.

Of these companies, 79.2% reported revenue above analyst expectations and 20.8% reported revenue below analyst expectations. In a typical quarter (since 2002), 62% of companies beat estimates and 38% miss estimates. Over the past four quarters, 62% of companies beat the estimates and 38% missed estimates.

In aggregate, companies are reporting revenues that are 2.5% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.3% and the average surprise factor over the prior four quarters of 1.2%.

The estimated earnings growth rate for the S&P 500 for 25Q2 is 13.2%. If the energy sector is excluded, the growth rate improves to 15.2%.

The estimated revenue growth rate for the S&P 500 for 25Q2 is 6.3%. If the energy sector is excluded, the growth rate improves to 7.5%.

The estimated earnings growth rate for the S&P 500 for 25Q3 is 8.4%. If the energy sector is excluded, the growth rate improves to 9.2%.

 

Trailing EPS are now $258.25. Full year 2025e: $267.58. Forward EPS: $283.34e. Full year 2026: $303.35e.

Factset

Xi outlines China’s ambition to reshape world order in showpiece summit

Xi Jinping has called on Russia, India and other countries in the region to join China in leveraging their economic influence to challenge the west at a time of rising geopolitical and trade tensions. (…)

“We should expand the scope of co-operation, make the most of each country’s unique strengths, and shoulder together the shared responsibility of promoting regional peace, stability and prosperity,” Xi told world leaders including Russian President Vladimir Putin and Indian Prime Minister Narendra Modi. (…)

In a veiled response to Trump’s trade war, the Chinese leader announced what he called a “global governance initiative” founded on principles including “sovereign equality”, “international rule of law” and “multilateralism”. (…)

Xi also said the meeting had agreed on Chinese proposals for the creation of a Shanghai Cooperation Organization development bank and outlined plans for Beijing to make loans and grants to countries in the grouping. (…)

Presumably not in USD…

Developing countries swap out of dollar debt to cut borrowing costs Sovereign borrowers are turning to lower interest rates in currencies such as the Chinese renminbi and Swiss franc

(…) A switch to renminbi borrowing — which comes as the Chinese currency hits its highest level against the dollar this year — is also a consequence of Beijing’s $1.3tn belt-and-road development programme, which has lent hundreds of billions of dollars for infrastructure projects to governments across the globe. (…)

Many “Belt and Road” loans of the 2010s were in dollars, at a time when US interest rates were far lower. (…)

Since governments rarely have export earnings in currencies such as the renminbi and Swiss franc, they also may have to hedge their exposure to exchange rates through derivatives. (…)

Companies in emerging markets are also selling more bonds in euros this year, with the amount of this debt in issue rising to a record $239bn as of July, according to JPMorgan. The overall stock of emerging market corporate bonds in dollars totals about $2.5tn. “This year’s euro issuance is growing more than we see in dollar issuance,” said Toke Hjortshøj, senior portfolio manager at Impax Asset Management. Asian issuers account for a third of the outstanding euro stock, up from 10 to 15 per cent 15 years ago, he added.

• Asian and Middle Eastern investors avoiding US, says private markets giant Partners Group’s Roberto Cagnati says some investors ‘more wary about what they’re exposed to’ following Trump shocks

Several top Asian and Middle Eastern investors including sovereign funds are asking to steer clear of US assets, spooked by policy shocks under Donald Trump, according to one of Europe’s largest private markets investors.

Executives at Partners Group told the Financial Times that some funds are asking to avoid US exposure entirely, citing uncertainty around tariffs or other potential trade or investment restrictions.

“There’s more people who look from Asia into non-US exposure,” said Roberto Cagnati, head of portfolio solutions at the Swiss firm, which manages assets worth more than $170bn, almost half of which are in the US. (…)

“The world becomes a bit more segregated and less integrated also, with regards to the financial system, as a result,” Cagnati added. “Economically, there will be a price for this.” (…)

The Cracks in America’s Rule of Law Are Getting Deeper Court battles over the administration’s sweeping use of executive power are exposing limits on how much judges can constrain the presidency.

(…) It’s a recurring pattern in Trump’s second term: On more than a dozen occasions, the Supreme Court has lifted an injunction issued by a trial judge who said the administration was at least probably acting illegally. The court has sometimes offered a few sentences on what the lower court got wrong — but not always. The decisions are part of the litigation blizzard spawned by Trump’s unprecedented use of executive actions to try to unilaterally reshape the law. (…) “The rule of law in America is facing grave threats, the likes of which it hasn’t seen in a generation,” said Gregg Nunziata, executive director of the Society for the Rule of Law, an advocacy and educational group of conservative lawyers, including former judges.

The courtroom has been a major flashpoint, underscoring the strains within the judiciary. Judges who conclude the administration is violating the law are finding themselves undercut by the Supreme Court, often without the kind of explanation that has been the hallmark of the US legal system. And in the name of keeping judges in their constitutional lane, the Supreme Court has stripped them of a key tool for keeping the executive branch from overstepping its authority: the universal injunction. (…)

“The failsafe for that kind of president is a Congress that pushes back and a public citizenry that is outraged by such behavior, but neither is happening right now. Too much is resting on the court. Or we maybe are expecting too much from it.”

The Supreme Court has sided with the administration, at least in part, in all but three of 21 emergency cases decided since January — a record of success the White House says amounts to vindication. (…)

The idea of the rule of law dates back as far as Aristotle, who in the 4th century B.C. wrote that “it is more proper that the law should govern than any of the citizens.” But it remains a bit of a slippery concept. It is “often invoked yet seldom defined,” now-retired Justice Anthony Kennedy said in a 2006 speech.

Kennedy went on to offer a semblance of a definition, laying out three key principles. The first, he said, is the understanding that the law binds everyone, including public officials. “Government is the servant of the law and the people,” he said. “It is not the other way around.” Second, the law must preserve the “dignity, equality and human rights” of everyone. And finally, the law has to be enforceable, telling people what their rights are and giving them a fair chance at getting redress if they are wronged.

Kennedy’s first and third principles — the law’s applicability to the government and its enforceability — are particularly relevant in the Trump era. Most glaringly, the administration has been accused, at times by judges themselves, of repeatedly flouting the law and disobeying court orders.

So far the administration hasn’t faced any real consequences for the findings of defiance, in large part because the Supreme Court hasn’t seemed overly bothered by them. (…)

Critics say the rulings collectively have created a law-free zone for the administration, giving Trump a window to implement sweeping policies even after a judge says he’s exceeding his authority.

“It is destroying the trust of the lower courts in the Supreme Court,” said Aziz Huq, a professor at the University of Chicago Law School and the author of a book on the rule of law. “And it’s destroying the judiciary’s own capacity to enforce constitutional rules or statutory rules.”

Part of the problem is the way many cases are landing at the high court these days — as stay applications on its emergency or “shadow” docket. These are generally requests to either pause or allow some action, like the firing of agency employees, until the courts have ruled on its legality. The court’s longstanding approach with stay applications is to assess which side will probably win in the end, but not to rule definitively. (…)

But the upshot of those sparing decisions at times has been to let Trump ignore legal constraints that bound previous presidents. In May, the court let Trump fire top officials at the National Labor Relations Board and the Merit Systems Protection Board — despite a decades-long consensus that presidents had to respect the job protections Congress created for those positions. The Supreme Court blessed restrictions on those types of firings in 1935, when it said Congress could legitimately protect leaders of the Federal Trade Commission from being fired in order to insulate them from political pressures. That ruling, known as Humphrey’s Executor, paved the way for the independent expert agencies that came to proliferate across the federal government.

The Supreme Court, which is stacked with supporters of a powerful presidency, has chipped away at Humphrey’s Executor in recent years. In 2020, a majority struck down job protections Congress gave the director of the Consumer Financial Protection Bureau, ruling that a person with so much executive power needed to be accountable to the president under the Constitution. But the court stopped short of overturning Humphrey’s Executor, saying the ruling remained in force at least for “multimember expert agencies that do not wield substantial executive power.”

That’s where things stood when Trump separately moved to fire NLRB member Gwynne Wilcox and MSPB member Cathy Harris. District judges rejected the ousters as illegal, saying Humphrey’s Executor remained binding law, and a federal appeals court agreed.

The Supreme Court then stayed the lower court rulings so Trump could oust Wilcox and Harris while the litigation went forward. In a delphic four-paragraph opinion that didn’t mention Humphrey’s Executor by name, the court said it wasn’t deciding whether the firings were constitutional. But it said it would err on the side of presidential power in the interim — effectively letting Trump circumvent Humphrey’s Executor without directly ruling on the issue. “The government,” the court said in its unsigned opinion, “faces greater risk of harm from an order allowing a removed officer to continue exercising the executive power than a wrongfully removed officer faces from being unable to perform her statutory duty.”

Left undiscussed was the potential harm to the agencies themselves or to the lawmakers who voted for the system. (For his part, Kavanaugh said in July in a separate case raising the same issue that the court should have immediately taken up the Humphrey’s Executor issue, rather than leaving the law in a state of “extended uncertainty and confusion.”)

The rule-of-law debate came to a head rather pointedly in the showdown over Trump’s effort to allow automatic birthright citizenship only for the children of citizens and permanent residents, a move that conflicts with more than a century of practice and legal consensus. After three district judges halted the policy as probably illegal, the Supreme Court ruled that judges could no longer issue universal injunctions that go beyond the parties in a case and apply nationwide. Though the decision so far hasn’t allowed Trump’s citizenship restrictions to take effect, it stripped district judges of a powerful device they have used repeatedly in recent years to broadly stop policies from Republican and Democratic administrations.

The ruling prompted a blistering dissent from Justice Ketanji Brown Jackson, who called the decision “an existential threat to the rule of law.” She continued: “Stated simply, what it means to have a system of government that is bounded by law is that everyone is constrained by the law, no exceptions. And for that to actually happen, courts must have the power to order everyone (including the executive) to follow the law — full stop.”

Writing for the majority, Justice Amy Coney Barrett offered a starkly different vision, arguing that the Constitution limits what judges can do. “No one disputes that the executive has a duty to follow the law,” Barrett wrote. “But the judiciary does not have unbridled authority to enforce this obligation — in fact, sometimes the law prohibits the judiciary from doing so.” Jackson was “embracing an imperial judiciary,” Barrett said.

If correct, Barrett’s view means Kennedy’s principles have their limits. Yes, the law applies to the president, but the president has significant latitude to decide what the law is, at least in the short term. And yes, the law must be enforceable, but judges have only so much authority to do the enforcing. In short, the rule of law depends heavily on having a president willing to accept it. (…)

How the Rule of Law Hits Wall Street:

• They [business people] want to know what the rules are. They need predictability. They need a sense of fairness that the rules are going to be applied in a predictable way to everybody.
• You have a rule of law or the absence of the rule of law. There is only one alternative to the rule of law and that’s “might makes right” because either you have rules that constrain the exercise of power by the powerful or the powerful are gonna make the rules and they’re gonna run society.
• Predictable, so that entities can know what they need to do to comply with the law, knowable for reasons of transparency and trust in the legal process.
• The rule of law is not just a guardian against corruption and personal misdeeds. It is also a guardian of an environment of robust business and economic sector.

US sliding towards 1930s-style autocracy, warns Ray Dalio Billionaire hedge fund boss says other investors are too scared of Trump to speak out

The Bridgewater Associates founder told the Financial Times that “gaps in wealth”, “gaps in values” and a collapse in trust were driving “more extreme” policies in the US.

“I think that what is happening now politically and socially is analogous to what happened around the world in the 1930-40 period,” Dalio said. (…)

“I am just describing the cause and effect relationships that are driving what is happening,” he said. “And by the way, during such times most people are silent because they are afraid of retaliation if they criticise.” (…)

Dalio said a politically weakened central bank, pressed to keep rates low, “would undermine the confidence in the Fed defending the value of money and make holding dollar-denominated debt assets less attractive which would weaken the monetary order as we know it”.

International investors had started shifting out of Treasuries into gold, he added. (…)

“The great excesses that are now projected as a result of the new budget will likely cause a debt-induced heart attack in the relatively near future,” he said. “I’d say three years, give or take a year or two.” (…)

The Fed would face a stark choice as the market began doubting the US’s fiscal credibility, Dalio added. “Allow interest rates to go up and have a debt default crisis, or print money and buy the debt that others won’t buy.” Both paths would hurt the dollar, he said. (…)

“Classically, increased wealth and value gaps lead to increased populism of the right and populism of the left and irreconcilable differences between them that can’t be resolved through the democratic process. So democracies weaken and more autocratic leadership increases as a large percentage of the population wants government leaders to get control of the system to make things work well for them.”

Hello darkness, my old friend
I’ve come to talk with you again
Because a vision softly creeping
Left its seeds while I was sleeping
And the vision that was planted in my brain
Still remains
Within the sound of silence

In restless dreams I walked alone
Narrow streets of cobblestone
‘Neath the halo of a streetlamp
I turned my collar to the cold and damp
When my eyes were stabbed by the flash of a neon light
That split the night
And touched the sound of silence

And in the naked light I saw
Ten thousand people, maybe more
People talking without speaking
People hearing without listening
People writing songs that voices never share
No one dare
Disturb the sound of silence

“Fools” said I, “You do not know
Silence like a cancer grow
Hear my words that I might teach you
Take my arms that I might reach you”
But my words like silent raindrops fell
And echoed in the wells of silence

And the people bowed and prayed
To the neon god they made
And the sign flashed out its warning
In the words that it was forming
And the sign said “The words of the prophets
Are written on subway walls
And tenement halls
And whispered in the sounds of silence”

Paul Simon

For Some Patients, the ‘Inner Voice’ May Soon Be Audible In a recent study, scientists successfully decoded not only the words people tried to say but the words they merely imagined saying.

For decades, neuroengineers have dreamed of helping people who have been cut off from the world of language.

A disease like amyotrophic lateral sclerosis, or A.L.S., weakens the muscles in the airway. A stroke can kill neurons that normally relay commands for speaking. Perhaps, by implanting electrodes, scientists could instead record the brain’s electric activity and translate that into spoken words.

Now a team of researchers has made an important advance toward that goal. Previously they succeeded in decoding the signals produced when people tried to speak. In the new study, published on Thursday in the journal Cell, their computer often made correct guesses when the subjects simply imagined saying words.

Christian Herff, a neuroscientist at Maastricht University in the Netherlands who was not involved in the research, said the result went beyond the merely technological and shed light on the mystery of language. “It’s a fantastic advance,” Dr. Herff said. (…)

One participant, Casey Harrell, now uses his brain-machine interface to hold conversations with his family and friends.

In 2023, after A.L.S. had made his voice unintelligible, Mr. Harrell agreed to have electrodes implanted in his brain. Surgeons placed four arrays of tiny needles on the left side, in a patch of tissue called the motor cortex. The region becomes active when the brain creates commands for muscles to produce speech.

A computer recorded the electrical activity from the implants as Mr. Harrell attempted to say different words. Over time, with the help of artificial intelligence, the computer accurately predicted almost 6,000 words, with an accuracy of 97.5 percent. It could then synthesize those words using Mr. Harrell’s voice, based on recordings made before he developed A.L.S. (…)

Yes, if you wonder, this last piece is related to the one above… new ways to let inner thoughts out.