US Housing Starts Rise to Five-Month High, Led by Multifamily

New residential construction increased 5.2% last month to an annualized rate of 1.43 million homes, according to government figures released Tuesday. That was above all forecasts in a Bloomberg survey of economists.

Multifamily starts, which tend to be volatile, increased nearly 10% to the strongest pace since mid-2023. Starts of single-family homes, which make up the largest share of home construction, rose 2.8% in July to an annualized 939,000. (…)

The number of one-family homes under construction fell in July to the slowest pace since February 2021, the report showed. Builders have signaled a slowdown in spec homes in particular, or those built without a signed contract. (…)

Building permits, an indicator of future construction, decreased 2.8% to an annual rate of 1.35 million — the weakest since June 2020. Single-family authorizations climbed for the first time since February. Permits for new multifamily projects declined. (…)

Permits Tell the Real Story

 

Source: NAHB and Wells Fargo Economics

Small business hiring fell for the third consecutive month

Using Bank of America small business payments to hiring firms data, in July, small business hiring was down 6.7% year-over-year (YoY) on a three-month moving average (Exhibit 2). This was the third consecutive monthly decline.

Based on an estimate before Trump’s duties took effect on August 7, the combined annual tariff impact to US small businesses is $202 billion, which works out to about $856,000 per firm each year, according to the US Chamber of Commerce.

Using Bank of America internal data, we examined payments to US Customs and Border Protection (CBP) to better understand the impact of these levies. In July, tariff payments to the CBP per small business client surged 170% compared to January 2025 (Exhibit 3). It’s important to note this data is limited in that only a small subset of Bank of America small business customers make direct tariff payments to CBP, given many do not have substantial international exposure, while others rely on customs brokers.

These tariff payments may be negatively impacting profitability for some small firms. Although, small business profitability, as proxied by the ratio of payments into small business accounts compared to the outflow, continues to rise. It was up 0.5% YoY in July, on a three-month moving average, but has been decelerating since the end of last year (Exhibit 4). Plus, according to the NFIB, the percentage of small business owners reporting poor sales as their top business problem rose one point to 11% in July – the highest level of reported poor sales since February 2021.

 

Wage Trends

Notably, even as hiring fell in services as well as retail and wholesale, payroll growth improved in July from both Q1 and Q2 across all sectors. That indicates wage inflation is driving up costs for these businesses, especially in services, according to the BLS, as companies are being forced to pay more for new hires.

Bank of America small business account data supports this – with leisure and hospitality sectors such as restaurants and lodging as acute examples. Starting in Q2, their payroll growth per small business client began to outpace overall median wage growth. It’s possible health and education services are also facing similar issues, whereas finance’s wage growth is likely due to a continuation of robust spending and pay increases among higher-income households.

Canada’s inflation rate slows to 1.7% in July, raising odds of BoC rate cut

Statistics Canada’s consumer price index report on Tuesday said the deceleration from 1.9 per cent in June was led by a decline in gasoline prices, reflecting the removal of the consumer carbon price in the spring.

Meanwhile, grocery prices rose at a faster pace of 3.4 per cent annually. Shelter costs increased by 3 per cent from a year ago, fuelled by a 5.1-per-cent rise in rent and a more modest decline in residential natural gas prices compared with June.

Financial markets reacted to the latest inflation data by increasing the odds of an interest rate cut in September to 36 per cent from 26 per cent the day before, according to data from Bloomberg.

Economists also responded positively to the report, noting that the slowdown could lead to an interest rate cut later this year. (…)

Modelling by the Bank of Canada suggests that if the tariff situation doesn’t change by much, Canada will likely avoid a recession and inflation will remain around the 2-per-cent target. (…)

To gauge underlying price pressures, the Bank of Canada keeps a close eye on its preferred core measures of inflation, which did not ease in July, continuing to hover around 3 per cent annually.

However, BMO chief economist Douglas Porter noted that the three-month annualized trend for those measures eased to 2.4 per cent in July. (…)

The central bank’s next interest rate announcement is scheduled for Sept. 17.

India’s State-Run Refiners Ramp Up Russian Oil Buying Despite US Criticism

India’s state-run refiners have returned to buying Russian oil after a brief pause, despite the South Asian nation facing higher tariffs for the trade and a volley of criticism from Trump officials. (…)

Trump has threatened to raise the levies on all Indian imports to the US to 50% on Aug. 27, half of which would be due to purchases of Russian oil.

(…) the discount for Urals — Russia’s flagship crude that’s shipped from its western ports — has deepened to $2.50 a barrel to Dated Brent, up from $1 in July, according to traders. That’s likely provided added incentive for India’s oil refiners to return to buying the grade, they added.

Europe Should Deepen Ties With Non-U.S. Trade Partners, Lagarde Says

“While the U.S. is—and will remain—an important trading partner, Europe should also aim to deepen its trade ties with other jurisdictions, leveraging the strengths of its export-oriented economy,” Lagarde told a panel at the World Economic Forum in Geneva on Wednesday.

Lagarde has previously spoken about how the European Union should bolster its institutions and economic resilience as a way to increase international prominence of the euro currency after the U.S. began to raise tariffs on its trade partners.

The deal between the U.S. and EU places an effective average tariff between 12% and 16% for U.S. imports of eurozone goods, she noted. The baseline tariff agreed to by the European Commission and Trump administration, which affects most goods, is 15%. (…)

U.S. Allies Still Waiting for Tariff Relief on Autos and Steel Hastily drafted trade accords leave questions about who promised what

In return for billions of dollars of investment pledges and promises to buy more American goods, U.S. allies in Asia and Europe say President Trump agreed to lower tariffs on key exports such as cars and steel.

Weeks later, they are still waiting. (…)

Even the U.K., which was the first country to agree to a new trade pact with Trump back in May, is still waiting for a reduction in steep tariffs on steel. The two sides are thrashing out final terms on exactly which U.K. steel exports will qualify.

A U.S. administration official said the U.S. agreed to discuss and possibly adjust these so-called Section 232 tariffs but said the administration didn’t make a firm commitment to change them as part of these initial agreements. (…)

Commerce Secretary Howard Lutnick said in an interview on CNBC on Tuesday that documents with deal terms for countries including Japan and South Korea are “weeks away,” but that investors shouldn’t expect “250-page trading agreements.” (…)

Almost as soon as some of these pacts were announced, cracks in what exactly they entailed started to show.

Following a deal with Seoul, the White House announced that South Korea would provide “historic market access to American goods like autos and rice.” Yet Finance Minister Koo Yun-cheol, one of South Korea’s top trade negotiators, told reporters when he returned home that he didn’t discuss rice with the U.S. team at all.

An administration official said White House announcements have laid out what trading partners have agreed to and “we expect them to abide by these commitments.”

Investment pledges have proved especially controversial, with U.S. allies pushing back on Trump’s insistence that he will have considerable discretion over how those funds are invested.

For instance, a $350 billion investment fund that was the cornerstone of the pact with South Korea, of which $150 billion is earmarked for cooperation in shipbuilding, would be “owned and controlled by the United States, and selected by myself, as president,” Trump said.

Kim Yong-beom, South Korea’s presidential chief of staff for policy, said that the fund “is not a structure where the U.S. unilaterally decides,” and that South Korea will also require the investment projects proposed by the U.S. to be “commercially meaningful.”

Japan’s top tariff negotiator, Ryosei Akazawa, flew back to Washington only days after striking Japan’s trade deal. In meetings with Trump officials, he protested that a July 31 White House executive order seemed to “stack” a new levy of 15% on top of any pre-existing tariffs on U.S. imports from Japan. He had told Japanese lawmakers the 15% wouldn’t be piled on top. He ultimately returned with a commitment from U.S. officials, he said, to revise the order.

The U.S. has agreed not to stack the new tariffs for Japan, an administration official said, though the official added that this wasn’t part of the deal Japan had initially negotiated.

The EU is also waiting for relief on auto tariffs and is negotiating improved terms for steel producers.

Asked about the vehicle tariffs recently, an EU spokesman said, “The U.S. has made political commitments to us in this respect and we look forward to them being implemented.”

US Soybean Farmers Near ‘Financial Precipice’ Due to Tariffs

US soybean farmers are near a “trade and financial precipice” and cannot survive a prolonged trade war with China.

That’s the warning from Caleb Ragland, president of the American Soybean Association. In a letter to President Donald Trump dated Tuesday, he urged the administration to reach a deal with China to remove duties and, if possible, include significant soybean purchases.

“US soybean farmers cannot survive a prolonged trade dispute with our largest customer,” he said. “Soybean farmers are under extreme financial stress. Prices continue to drop and at the same time our farmers are paying significantly more for inputs and equipment.”

In an email statement to Bloomberg News, the White House said the president cares about farmers. (…)

China hasn’t purchased a single cargo of soybeans from the next harvest, which starts in September. In typical years, the Asian nation ordered an average of 14% of its estimated purchases from the US before crop gathering began, according to an analysis by the group, provided to the administration together with the letter.

US sales to other countries haven’t been able to make up the difference, Ragland said, adding that tariffs are making US supplies less competitive than those from rival Brazil. (…)

Kenya in Talks With China to Convert Dollar Loans Into Yuan Debt

Kenya is in talks with China to convert dollar-denominated debt the East African nation owes its biggest bilateral lender to yuan and extend the repayment period, Treasury Secretary John Mbadi said.

The negotiations are aimed at helping reduce the $1 billion Kenya spends annually on servicing its debt to China, and to create more wiggle room in its budget, he said in an interview in the capital, Nairobi, on Wednesday. The discussions are expected to conclude soon, Mbadi said, without providing a more specific timeframe.

“The moment we move from US dollar to renminbi, automatically, the interest rate reduces by almost half,” while adjusting the tenor of the loan would also benefit the country, the minister said. “To us, that is a big saving.” (…)

Trump Administration to Screen Immigrants for ‘Anti-American’ Views 

The Trump administration plans to scrutinize social media for “anti-American ideologies” when deciding to grant visa or green-card applications.

U.S. Citizenship and Immigration Services, the primary agency in charge of legal immigration, said Tuesday that its officers should give significant weight to evidence that an immigrant “has any involvement in anti-American or terrorist organizations” when reviewing residency, work and visa applications. 

When it comes to what registers as anti-American ideology, the updated guidance points to a provision of immigration law dating back to the Cold War that prohibits immigrants from becoming U.S. citizens if they are members of communist or anarchist organizations. It doesn’t specify the range of speech the administration would categorize as anti-American.

The Department of Homeland Security said Tuesday that it would no longer turn a blind eye to those who seek to live and work in the U.S. but criticize its policies. (…)

The latest directive builds on the agency’s April announcement that it would screen immigrants’ social media for evidence of antisemitism. As part of that shift, many immigrants, including those applying for tourist or student visas to the U.S., must now submit their social-media handles and make their profiles public for officers to review.

It is another step in the Trump administration’s goal of not only reducing overall immigration levels, but also in shaping the types of immigrants permitted to come to the country. The administration has also used allegations of anti-American and antisemitic activity against students who have participated in pro-Palestine protests.

The administration also tightened citizenship standards last week in a separate policy memorandum that said applicants will need to prove “good moral character.” That includes contributing to the community, having a good education, holding down a job and paying taxes on time, according to Homeland Security.

Will Trump provide the definition of “good moral character”?

Behind the Curtain: Influencing Trump There’s a clear map for swaying President Trump — and it goes far beyond the cartoonish commentary that flattery and gifts are the surest ways.

CONSUMER WATCH

Home Depot Sales Fall Short on Soft Demand for Big-Ticket Items

The world’s largest home-improvement retailer said comparable sales grew 1% in the fiscal second quarter, less than analysts had expected but an improvement from the prior quarter. (…)

Consumers are increasingly taking on small projects, and twelve out of 16 merchandising departments posted comparable sales growth. In the US, the trend accelerated throughout the quarter, according to McPhail. At the same time, he confirmed that people are still stalling on bigger works. (…)

The company was able to maintain pricing levels because most of its imported goods arrived before the new tariffs. Later in the year, some items will get more expensive, McPhail said. Home Depot sources more than 50% of its items in the US and said it plans to keep prices competitive.

Competitor Floor & Decor Holdings Inc. recently said price changes it put in place weren’t material last quarter, but that it expects to take more action later this year. (…)

• “Over the past 3 years, U.S. employers have persistently decreased hiring and the currently employed have switched jobs less often…That is not to say that the labor market is rebounding, that is to say that it is stabilizing.” — ZipRecruiter ($ZIP ) CEO Ian Siegel (The Transcript)

Indeed!

  Trump Widens Metal Tariffs to Target Baby Gear and Motorcycles

President Donald Trump stunned the logistics industry on Friday by widening his steel and aluminum tariffs to include more than 400 consumer items that contain the metals, such as motorcycles and tableware. Customs brokers and importers in the US were given little notice to account for the change, which went into effect Monday and did not exclude goods in transit.

The new tariff inclusion list was posted by the Customs and Border Protection agency just as many were leaving for the weekend and appeared in the Federal Register on Tuesday, creating fresh headaches for trade professionals. Official guidance has been muddled, especially for goods already on their way to the US, and it’s unclear whether the metals levies stack on top of country-by-country tariffs. (…)

“We’ve had a lot of these 11th-hour implementations throughout 2025, this one in particular impacts every single client I have to an enormous degree,” Michigan-based customs broker Shannon Bryant said in an interview.

“Earlier announcements at least had some in-transit exemptions so at least importers could make reasonable buying decisions,” said Bryant, president of trade compliance advisory service, Trade IQ. “This one was unique in that way — it’s very much a ‘gotcha.’”

The new list includes auto parts, chemicals, plastics and furniture components — demonstrating the reach of Trump’s authority to use sectoral tariffs. That is separate from the executive power he invoked for his so-called reciprocal tariffs.

“Basically, if it’s shiny, metallic, or remotely related to steel or aluminum, it’s probably on the list,” Brian Baldwin, a vice president of customs in the US at logistics giant Kuehne + Nagel International AG, wrote in a post on LinkedIn. “This isn’t just another tariff — it’s a strategic shift in how steel and aluminum derivatives are regulated.” (…)

The compliance burden, Flexport said, “is significant.”

This tranche of tariffs is also particularly expansive, including items such as motorcycles, cargo handling equipment, baby booster seats, tableware and personal care products that come in metal containers or packaging.

Jason Miller, a professor of supply chain management at Michigan State University, conservatively estimates that the metals tariffs now cover about $328 billion worth of goods, based on 2024 import data. That’s six times greater than in 2018 and a big jump from the $191 billion worth of goods covered prior to the change, he said in an email to Bloomberg News.

Bryant, whose clients include cosmetics and commercial cookware importers, sent a letter to her elected officials in Washington on Monday warning that the complexity of overlapping tariffs is becoming unworkable even for professionals. “For small importers,” she wrote, “it’s impossible.” (…)

“These are American companies that employ American people that are being ambushed by their own government.” (…)

There’s very likely more to come. At the end of July, the Trump administration imposed a 50% duty on semi-finished copper imports valued at more than $15 billion and ordered officials to come up with a plan to slap tariffs on an array of other copper-intensive goods.

“This isn’t over,” said Pete Mento, DSV’s global customs director, in a social media post on Monday. “The next list will surely be for copper and I expect that to be equally as miserable.”

Trump Tariffs Seen Fostering New China-Global South Trade Order

President Donald Trump’s tariff war is accelerating Beijing’s trade and investment push into developing nations known as the Global South, according to research by S&P Global, potentially creating a new trade order dominated by Chinese firms.

China’s goods exports over the past decade have doubled to nations mostly across Southeast Asia, Latin America and the Middle East, compared with growth of 28% to the US and 58% to Western Europe, S&P Global said in a report Tuesday. That trend has accelerated in the five years since Trump’s first term. (…)

“High uncertainties under US tariffs and China’s slowdown will continue to motivate Chinese firms to head to the Global South,” S&P Global’s economists said in the report. “The result could be a new order of global commerce where South–South trade becomes the new center of gravity and Chinese multinationals emerge as the new key players.” (…)

Chinese officials have increasingly sought to bolster relations with developing nations in recent months, reducing trade barriers and signing new trade deals. In June, President Xi Jinping said he would eliminate all import tariffs on almost all African nations, and he has attended summits and held meetings with Latin America and Southeast Asia leaders.

China’s trade with its 20 largest partners in the Global South now makes up on average 20% of those countries’ gross domestic product, according to S&P Global. As well, more than half of China’s total trade surplus is with the Global South, compared with 36% for the US and 23% for Western Europe. (…)

• India Sees ‘Upward Trend’ in China Ties Amid Trump Threats

Indian Prime Minister Narendra Modi’s top aide said ties with Beijing are on an “upward trend,” another signal that New Delhi may be recalibrating its foreign policy amid mounting tariff pressure from US President Donald Trump. (…)

The Chinese minister is visiting India for the first time in three years and is scheduled to meet Modi later in the day. The two countries have made slow but steady progress in repairing ties since late last year, with efforts gaining urgency amid Trump’s tariff policy.

Doval said his talks with Wang hold “very special importance,” as Modi is set to visit China later this month for a regional summit — his first trip there in seven years. (…)

During Wang’s trip, China has assured India of supplies of fertilizer, rare earth minerals and tunnel-boring machines, an official in New Delhi told reporters, asking not to be identified because discussions are private.

Still, despite the recent thaw, China remains a key ally of India’s main rival Pakistan, leaving it uncertain how far Modi will tilt toward Beijing. Wang will be heading to Pakistan on Aug. 20-22, according to a statement from his ministry on Tuesday.

• The Dollar Still Rules, But US Policy Is Making It Less Special America will have less geopolitical and economic leverage if investors and central banks hold more kinds of currency.

President Donald Trump’s push to redesign the global economic order in favor of the US is shaking one of the foundations of its post-World War II supremacy: the dollar’s undisputed role as the world’s reserve currency.

It’s a status that shows the dollar is used in roughly nine out of 10 foreign exchange transactions and about half of all merchandise trade conducted globally, and is making up almost 60% of reserves held by governments around the world. That dominance helps Washington to run gaping budget deficits and US consumers to spend more than they make—all funded by overseas investors eager to snap up assets denominated in greenbacks adorned with the motto “In God We Trust.”

But trust in the dollar is faltering. In 2022 the Biden administration’s curbs on Russia’s access to the currency after the invasion of Ukraine spurred a first round of diversification. If the US could freeze out the world’s 11th-largest economy, so deeply entrenched in global oil markets, is anyone safe?

The Great Inflation, and a rapidly deteriorating fiscal trajectory since then, has added to doubts about American economic exceptionalism.

And most recently, the haphazard rollout and rollback of Trump’s tariff campaign in April sparked a rare weakening in both the dollar’s value and that of US Treasuries. The US dollar index tumbled more than 10% in the first six months of the year, its worst first-half performance since 1973. (…)

Banks and brokers are seeing rising demand for currency products that bypass the dollar, and some of Asia’s richest families are cutting exposure to US assets, saying Trump’s tariffs have made the country much less predictable. Geopolitical rivals within BRICS—a loose group of large economies led by Brazil, Russia, India, China and South Africa—are continuing their long push for a new cross-border payments system. Even long-term allies such as Europe see an opportunity to erode the dominance of the dollar.

Not everyone is so dour. JPMorgan Chase & Co.’s Jamie Dimon said in May that the US remains the most “prosperous, innovative nation on the planet” and that he doesn’t fret over short-term fluctuations in the dollar. Secretary of the Treasury Scott Bessent has tried to convince investors that the strong dollar policy remains intact, and his boss has threatened 100% tariffs against anyone who dares challenge it. Yet for all the tough talk, the reality is that the greenback’s greatest relative strength is actually the lack of any single challenger to its standing atop the global monetary order.

There’s talk of a “global euro moment” in which the European common currency plays a bigger role, but history has shown that the bloc struggles to move in sync, and its institutions are too fragmented to create the markets deep enough to rival those of the US. China’s central bank governor is talking up his nation’s currency as an option for those seeking to shift from the dollar, but it’s hard to imagine how that will be embraced when capital controls still impede the free flow of assets across Chinese capital borders. (…)

With no viable alternative to the US dollar as the world’s currency on the horizon, the more likely change is to a multicurrency world. The dollar would still be dominant, but other currencies would play a larger role. Although this may not be as revolutionary as a complete breakdown in the global monetary order that some dollar doomsayers are foreseeing, the resulting currency competition will still have profound effects on the US’s hard and soft geopolitical power. Indeed, no one is really ready for what a feeding frenzy of currency competition will mean in ­practice—especially not Americans.

The US would have to give up some of the benefits of the strong-dollar regime, a key one being lower interest rates as fewer overseas investors buy dollar-denominated bonds. Barry Eichengreen, an economist at the University of California at Berkeley, who’s written extensively on the dollar, has calculated that in a scenario where the US withdraws from the global stage, the dollar’s share of reserves in countries that rely on its security could decline by about 30 percentage points. Long-term US interest rates could increase by as much as 0.8 of a percentage point, he estimates. (…)

In a world where euro- or yen-denominated assets are more strongly vying for investor attention, borrowing costs for the US government would need to rise. In fact, we’re already noticing signs of that: Thirty-year Treasury yields have more than doubled since the start of 2022 and exceeded 5% at one point in May. That means America will pay more for new borrowing and more to keep rolling over its existing debt too. Annual payments on US government debt by some measures are now larger than what the country spends on national defense. (…)

A less hegemonic dollar would affect America’s geopolitical prowess. With a weaker currency, overseas military bases would become more expensive to keep up. With less use of the dollar in global transactions, economic sanctions would have less bite. And policing the financial system for malign activities, such as financing terrorist undertakings or laundering money, would be harder because flows outside of dollar-based networks won’t be visible to American policymakers. (…)

US Treasury secretaries, the stewards of the dollar and American currency policy, have long said that it’s up to the nation itself to guard the treasure that the reserve asset is. Whether it’s Bob Rubin, Hank Paulson or Janet Yellen, these leaders have said that a strong economy bolstered by independent institutions and the rule of law will protect the dollar’s status. Yet the Trump administration has sent mixed signals. Bessent has stuck largely to the script of predecessors, but Stephen Miran, chair of the White House’s Council of Economic Advisers and Trump’s latest pick to serve as governor of the Federal Reserve, has referred to the dollar’s status as a “burden.”

Trump’s efforts to shift executive authority into independent agencies like regulators and even the Federal Reserve, his consistent challenges to the courts, and Washington’s disregard for record-high federal debt are adding to the dollar’s headwinds. Trust is the cornerstone of the world’s choice of the dollar as king, and Trump is chipping away at that credibility. “For the first time, the dollar’s future status may be determined by how other currencies develop,” Lipsky says. “And those will develop faster if people are looking for them—that’s the lesson of capitalism.” (…)

A multicurrency era could provoke instability as investors run from one to another in reaction to financial conditions, compounding the challenge for businesses already grappling with how they’ll rewire supply chains in an era of rising tariff walls.

Today’s steward of US currency policy, Bessent, is pushing back against the dollar doubters: “Since World War II, the demise of the dollar as a reserve currency has been predicted,” he said on Bloomberg TV on July 3. “Once again, the skeptic is going to be wrong.” And he’s right: The US dollar isn’t about to disappear from central bank hoards or as a medium for global finance. But it will face more competition in a multipolar world. And that will have unpredictable repercussions both at home and abroad.

You Can’t Break the Laws of Economics Supply and demand invariably overcome any effort to defy or outsmart them.

(…) Simple economics is surprisingly good at making real-world predictions.

When Mr. Trump imposed steel and aluminum tariffs in 2018, the University of Chicago surveyed dozens of top economists. These weren’t partisan hacks; they included Nobel laureates and advisers to both parties. Not one of them thought that Americans would be better off because of the tariffs.

Seven years later, what have we learned? Study after study—using customs data, retail prices and scanner data from stores—has found that American businesses and consumers bore virtually 100% of the tariff burden. The economists were right: As consumers, Americans weren’t better off.

Americans were also hurt as workers. Economists have discovered that about half of U.S. imports are used as inputs in the production of other goods. Aluminum goes into beer cans. If the price of aluminum rises, beer companies will buy fewer cans. Fewer cans mean fewer workers. Researchers found that because of the 2018 tariffs, downstream American industries—the companies that use aluminum to make everything from beer cans to car parts—lost jobs, swamping any gains to aluminum producers.

Tariffs intended to protect American workers destroyed more jobs than they created. Empirical studies confirm a basic idea from economics: If you tax something, the price rises, and people use less of it. (…)

The power of economics comes from using supply and demand to predict what happens next. (…)

Understanding economics helps not only with prediction but also with designing policies. (…)

More recently, New York City’s congestion-pricing scheme confirmed that pricing scarce road space reduces traffic and improves commute speeds—as economics predicts.

Rather than abandoning economics because it’s politically inconvenient, we should celebrate its remarkable ability to explain how the world works. There’s always more to learn. But the basics aren’t broken; they’re underappreciated.

• Chipotle and Shake Shack Help Solve an Economic Puzzle The decline in immigration and international tourism to the US is having a very real economic impact, even if it may not be showing up in the broad data just yet.

Good research by Conor Sen, a Bloomberg Opinion columnist. He is founder of Peachtree Creek Investments.

A string of disappointing earnings results has sparked large declines in the stock prices of multiple fast casual food companies, including Cava Group Inc., Sweetgreen Inc., Shake Shack Inc., Chipotle Mexican Grill Inc. This has raised questions about the state of consumption as the US economy absorbs tariffs and job growth slows. So although the overall data on spending suggests there’s nothing to panic about just yet, the geographic footprint of some of those chains provides some answers.

In short, these companies are overexposed to critical coastal metro areas that are immigration hubs and popular international tourism destinations, as well as overwhelmingly Democratic places in an environment where economic sentiment among that political group has soured to record lows. The fast casual restaurant industry may be the real key in solving the puzzle for how the US consumer appears resilient even though government policies are dissuading foreigners from entering the US.

The first three of those fast casual chains — Cava, Sweetgreen and Shake Shack — are noteworthy because they’re overrepresented in some combination of the metros of New York City, the District of Columbia and California. Cava is headquartered in DC and has 17% of its locations there and in Maryland and Virginia. More than a third of Sweetgreen’s locations are in New York or California. About 80 of Shake Shack’s 610 locations are in the New York metro area.

The locations are significant because year-to-date through June, the metros of New York, DC, Los Angeles, and San Francisco have collectively lost 43,000 jobs while the US overall added more than 500,000. All else equal, places with less job creation are going to see less dining out activity and less consumption in general. The labor force in those four metros has shrunk by 60,000 people year-to-date after increasing by 160,000 in 2024, suggesting that the decline in immigration is having an impact.

It’s fair to ask whether newly arrived immigrants are really the kinds of customers that Cava and Sweetgreen are missing. For them, the slump in international tourism likely matters more. We’ve seen this most clearly in Las Vegas, where the decline in international visitors is part of the reason why there’s been an overall drop in tourists. Tourism from Canada has been particularly weak, with the number of Air Canada passengers to Las Vegas cratering 33% in June relative to a year earlier.

New York and California are feeling the impact as well. New York City Tourism + Conventions cut its forecast for international tourists this year by 17%, which would mean two million fewer such visitors than in 2024. Visit California projected a 9.2% decline in international visits for the state this year. Tourists don’t get jobs, but they do eat.

In its earnings report, Shake Shack noted that “same-Shack sales” in both New York City and the northeast were down 2% versus mid-single digit growth in other regions. Sweetgreen Chief Executive Officer Jonathan Neman said most of his company’s weakness was in “urban Northeast environments.”

This is happening at a time when consumer sentiment among Democrats is in the dumps. The preliminary University of Michigan Consumer Sentiment survey for August showed that the mood among Democrats has really never been lower, with liberal-leaning workers in coastal metros perhaps not feeling good enough about what lies ahead to splurge on a $17 Sweetgreen salad bowl. The strongest same-store sales performances among food services establishments last quarter included Olive Garden, Longhorn Steakhouse, and Texas Roadhouse, places more geographically diversified and with more of a middle America customer base.

The diverging fortunes of various dining chains help solve some of the riddles that have emerged in the economy. (…)

The decline in both immigration and international tourism has had very real impacts, with some areas of the country affected much more than others. And at a time when the US remains as politically polarized as ever, consumer sentiment among Republicans is far higher than it is among Democrats, suggesting that conservative-leaning consumers are in more of a spending mood than urban, liberal-leaning ones at the moment.

The message from these earnings reports is that the US economy isn’t a monolith, particularly when it comes to the consumer. We’ve seen bifurcations between high- and low-income consumers, and similarly, there’s a divergence in dining trends between places more reliant on international visitors and those more anchored in middle America. So far, that international weakness hasn’t been enough to cause a downturn in the overall economy, but don’t tell that to a restaurant operator in Manhattan or Las Vegas.

AI Is Holding Up the Sky. The Rest Fell Back to Earth The average stock’s outperformance has returned to 2003.

John Authers:

Newsflash: the US stock market is very concentrated. The performance of the equal-weight version of the S&P 500 — which effectively measures the average stock by weighting each constituent as 0.2% of the index regardless of their size — compared to the cap-weighted index has dropped to its weakest in 22 years: (…)

But the dominance of the very biggest stocks is new, and hints at at least one critical difference from the dot-com era. This is how the biggest 10 stocks’ weighting in the S&P 500 has changed at five-yearly intervals going back to 2000. It’s usual for a few winners to win big at any one time. That’s the nature of capitalism. It’s unheard of for 2% of the index’s companies to account for virtually 40% of its value: (…)

The eagle-eyed will also note that buying the biggest stocks and holding them is a dangerous strategy. Nortel Networks, eighth-biggest 25 years ago, went bankrupt in 2009 and no longer exists. Intel isn’t in the shape it used to be. AIG’s market cap has shed 80% since its 2000 peak, while General Electric, now on the way back, at one point dropped 92% from its peak. It’s really not so unlikely that similar fates will befall one or more of the currently dominant group.

That creates a problem for passive investors, as buying the index no longer diversifies risk. These charts show the inverse Herfindahl-Hirschman index, a statistical measure often used by antitrust regulators to measure concentration in industries. It shows the number of stocks needed to match the diversification provided by the index. Now, only 100 stocks are needed to match the MSCI World:

Meanwhile, for the S&P 500 that number has dropped below 50: (…)

But this time is more complicated because the Magnificent Seven stocks have registered very real growth in earnings per share in a way that leaves everyone else far behind. It’s hard to say that there’s a problem with overvaluation when earnings growth for the Magnificents has outstripped the rest to such an extent:

This is not like the dot-com bubble, when hot companies hoovered up cash from investors. This time, a very small group is siphoning profits from everyone else. Rather than the market, the concern lies with the companies themselves. How can they make such big profits, and can they possibly retain them?

The big tech groups have also been spending money far faster than ever before. This is a new development. Tech is usually “capital-light.” Capital expenditures on the computing capacity needed for AI and the energy to back it have surged, so that the companies now invest almost as much of their cash as everyone else combined:

Well-deployed capital expenditures pay for themselves with higher profits, but those still have to happen. Meanwhile, Big Tech’s free cash flow yield (operating cash flows minus capital expenditures as a proportion of market cap) leaves little wiggle room for share buybacks or dividends:

No end to this trend is in sight. With Nvidia, currently the biggest, yet to report, David Kostin of Goldman Sachs reports that the other Magnificents grew their earnings per share by 26% year-on-year in the second quarter, well ahead of expectations. For next year, their estimated earnings have risen 1% so far this year, while everyone else’s have been written down by 4%. According to Kostin, the results prompted analysts to list their Magnificents capex estimates for next year by 29% to $461 billion.

History suggests that not all of the Seven will be magnificent a few years from now. It also shows that their current dominance is unprecedented. AI, and their embrace of it, is a phenomenon of the age. All should be aware just how much the current positive perceptions of the market and of the US economy rely on it.

Lawmakers Win Round in Spending Fight With White House Website tracking federal payments is back online following court ruling, after administration took it down in March

(…) OMB chief Russell Vought previously said restoring the site would disclose sensitive information, forcing the Trump administration to reveal how it made decisions.

Lawmakers charged the OMB was making it difficult to tell if funds passed by Congress were being spent. (…)

Murray pointed to an article in The Wall Street Journal that reported billions in dollars for health researchers had been frozen by OMB, only to be released after the freeze was revealed by the Journal.

Lawmakers of both parties have been locked in a battle for months with the administration over its efforts to claw back funds already approved by Congress. The GOP-led House and Senate narrowly approved a $9 billion rescissions package canceling funding for public media and foreign aid last month, while pushing back against other White House efforts. Vought has said he was looking for more cuts, whether or not Congress approves.

The restoration of the database “is a significant win for transparency and Congress’s power of the purse at a time when both principles are facing an unprecedented attack,” said Donald K. Sherman, executive director and chief counsel for Citizens for Responsibility and Ethics in Washington, the plaintiff in the lawsuit.

Blank-check boom, again: The SPAC King is back.

Chamath Palihapitiya became the public face of the blank-check frenzy during its pandemic-era boom and subsequent bust. Now the former Facebook executive has filed for a $250 million initial public offering for American Exceptionalism Acquisition Corp. A, joining the ranks of sponsors giving special purpose acquisition companies another go.

Palihapitiya raised 10 blank-check vehicles — four of which never completed deals to take companies public — before the bubble burst. In 2022, he shut down two jumbo SPACs that failed to find takeover targets.

His return is another sign, along with surging prices for cryptocurrencies, of how the riskiest corners of financial markets are booming since Donald Trump returned to the presidency.

Brandon Lutnick — the son of Trump’s billionaire Commerce secretary, Howard Lutnick — has pushed the investment bank he runs, Cantor Fitzgerald, to lean in on SPACs, advising on them as well as sponsoring them. Other serial backers including Betsy Cohen have also returned to the arena.

In a letter to potential investors included in the IPO filing, Palihapitiya warned that retail investors should stay away unless they can afford to lose their entire investment. —Bailey Lipschultz