Note: I am currently travelling. Hence the more limited postings.

EMPLOYMENT WATCH

US Initial Jobless Claims Rose Last Week, State Data Suggest

Initial claims increased to about 228,000 in the week ended Nov. 1 from a revised 219,000 in the prior week, the Labor Department data suggest.

The Labor Department hasn’t issued its weekly report since Sept. 25 because of the government shutdown, but it did make downloadable data available for most states. Bloomberg News adjusted those raw numbers using pre-released weekly seasonal factors from the Bureau of Labor Statistics.

When data from all states are included, this approach comes close to matching the official seasonally adjusted figures. However, the latest weekly data was unavailable for New Mexico and the Virgin Islands. For those locations, Bloomberg News substituted the average of the prior four weeks.

Continuing claims, a proxy for the number of people receiving benefits, edged up to 1.96 million in the week ended Oct. 25 from 1.95 million, Bloomberg News calculated.

• LinkUp estimates show the US economy lost -5,000 jobs in October, the 2nd negative monthly reading since January 2021. LinkUp uses a dataset of real-time job postings, sourced directly from company websites across the country. This comes as new and total job listings declined -4% and -2% MoM, respectively. This also marks a significant drop from the September forecast of +80,000 jobs added. The job market needs help. @KobeissiLetter

• US Companies Announce Most October Job Cuts in Over 20 Years

US companies announced the most job cuts for any October in more than two decades as artificial intelligence reshapes industries and cost-cutting accelerates, according to data from outplacement firm Challenger, Gray & Christmas Inc.

Companies announced 153,074 job cuts last month, almost triple the number during the same month last year and driven by the technology and warehousing sectors. It’s the most for any October since 2003, when the advent of cellphones was similarly disruptive, said Andy Challenger, the company’s chief revenue officer.

The numbers are weak no matter how they’re spliced. Year-to-date job cuts have exceeded 1 million, the most since the pandemic. In the same period, US-based employers have announced the fewest hiring plans since 2011. Seasonal hiring plans through October are the lowest since Challenger started tracking them in 2012. (…)

Separate data out Thursday from Revelio Labs showed US overall employment fell about 9,000 in October, largely reflecting a decline in the government sector. Smaller decreases were noted at manufacturers, retailers and wholesalers, while education and health services led those industries increasing employment.

Data from the workforce intelligence firm also showed an increase in the number of employees who were issued layoff notices last month. Those figures are drawn from so-called WARN notices that require companies with at least 100 workers to issue advance notice of plans to lay off at least 50 employees.

• Challenging The Challenger Report (Ed Yardeni)

(…) The actual number of layoffs during the month was 153,074, as the report notes in its first sentence. So far, October’s jump hasn’t been confirmed by initial unemployment claims. The official data are available only through September 19 because of the government shutdown.

But Bloomberg News estimates that jobless claims decreased to about 218,000 in the week ended October 25 from a revised 231,000 in the prior week. Those are low readings.

Most of October’s announced layoffs occurred in the warehouse and technology industries (chart). Automation and robotics are boosting productivity in warehousing. AI is doing the same in technology. (…)

There was a big jump in October’s warehouse-related announced layoffs. That’s odd since the holiday season should keep warehouses very busy. Again, this spike is probably primarily attributable to productivity gains, especially in online retailers’ inventory management.

Meanwhile, announced hiring plans also spiked higher in October, according to seasonally adjusted data. (…)

As seen above, Bloomberg calculates that initial claims increased to about 228,000 in the week ended Nov. 1 from a revised 219,000 in the prior week. Also, keep in mind that Challenger’s numbers are announced layoffs which normally take 1-2 months before the actual layoffs.

Also, explaining layoffs is fine, but they are still layoffs.

• Data suggests the slowdown in employment growth has not intensified (The Bank of America Institute):

What can Bank of America internal data tell us about the state of the labor market in October? In our view, while our data continues to suggest the labor market has cooled over recent months, there was no sign of a further deceleration in October.
We use Bank of America internal deposit data to estimate a payrolls series by looking at how the number of customer accounts receiving a paycheck is changing. This data can be fairly noisy, partly due to seasonal variation. However, looking at a three-month moving average, Exhibit 1 suggests that the year-over-year (YoY) growth in this measure remained around 0.5% YoY in October, very similar to the growth rate in September. So, while this data does suggest a slowdown in jobs growth has taken place since the summer, it tends to suggest that for now at least, there is no further deceleration.

Bank of America deposit data suggests some easing in after-tax wage and salary growth. Higher-income households’ after-tax wage and salary growth was 3.7% YoY in October, while for middle-income households it was 2.0% YoY and for lower-income households it was up 1.0% YoY. Although these changes are relatively small compared to September, they could suggest some easing in pay pressure, in our view.

The last official data available on consumer spending is August when spending accelerated to +5.5% YoY while labor income decelerated to +4.4%.

The Bank of America data above suggest that labor income growth decelerated further since and could be closer to 2.5-3.5% in Q4, roughly in line with inflation. Will Americans dip into their savings to secure a merry Christmas?

Through Oct. 31, Indeed job postings keep falling, now almost back to pre-pandemic levels:

Meanwhile, the GDPNow model estimate for real GDP growth in the third quarter of 2025 is 4.0 percent.

Good luck with your economic forecasts…

…and your earnings estimates:

K-Shaped Economy for Firms

Since earlier this year, earnings expectations have increased for the Magnificent Seven and declined for the S&P 493.

Sources: Bloomberg, Apollo Chief Economist

US Services PMIs

S&P Global’s: Upturn in services growth tainted by higher costs and reduced optimism about the year ahead

The headline S&P Global US Services PMI® Business Activity Index edged higher in October, rising to 54.8 from September’s 54.2. Remaining above the critical 50.0 no-change mark for a thirty-third successive month, the index was consistent with a marked rate of growth that was slightly above the survey trend.

Supporting growth in activity was a solid, and slightly faster, increase in new business volumes. Panelists reported that client demand and enquiry levels had improved since September, although some ongoing uncertainty created by tariffs and government policies placed a limit on demand growth. This was especially the case for international customers, with a marginal decline in new export business recorded in October for the sixth time in the past seven months.

With activity rising to a quicker degree than overall new work, service providers were broadly able to keep on top of their workloads in October. Although rising overall for an eighth month in succession, levels of work outstanding increased only marginally and to the softest degree since March. Additional employment numbers also helped to limit backlog growth, with latest data signaling an eighth consecutive monthly increase in staffing levels. As well as dealing with greater workloads, staff were hired to support new projects and sales efforts.

Whilst improving since September, the rate of employment growth was only modest amid some reports that leavers were not being replaced. This partly stemmed from cost considerations, with service providers noting that labor related expenses had been a source of increased overall operating expenses during October. Tariffs were also reported to have driven up input costs since September.

Although steep, input costs rose to the slowest degree in six months, which helped to explain a similar slowdown in the rate of selling price inflation (also the weakest since April). Panelists reported that competitive pressures had limited the degree to which higher costs could be passed onto clients.

Finally, looking ahead, service providers remained positive about future activity levels during October, albeit to a reduced degree compared to September. Interest rate cuts were reported to have bolstered sentiment, with firms expecting these to support improved spending and economic output. Firms were more uncertain however when considering the role of federal government policies in supporting growth

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

“October’s final PMI data add to signs that the US economy has entered the fourth quarter with strong momentum. Growth in the vast services economy has picked up speed to accompany an improved performance in the manufacturing sector. In total, business activity is growing at a rate commensurate with GDP rising at an annualized pace of around 2.5% after a similarly solid expansion was signalled for the third quarter.

“While growth is being driven principally by the financial services and tech sectors, the survey is also picking up signs of improving demand from consumers.

“However, there are signs that new business is coming at the cost of service providers having to soak up continued high input price growth to remain competitive. Customers are often pushing back on price rises, especially in consumer-facing markets. While good news in terms of inflation, this lack of pricing power hints at weak underlying demand and lower profits.

“Business expectations about the year ahead have also fallen sharply and are now running at one of the lowest levels seen over the past three years, as signs of spending caution from customers is accompanied by heightened political and economic uncertainty. However, lower interest rates have helped offset some of the drags to business confidence, for which the October FOMC rate cut will have likely helped further.”

The ISM:

The overall ISM rose to 52.4 in October amid a general firming in conditions last month. Select industry comments were fairly mixed with some commenting on strong or steady business conditions, while others continued to emphasize uncertainty around tariffs and the government shutdown impacting activity.

The main activity measures bounced back last month, which is encouraging and suggests September’s weakness may overstate the current extent of slowdown in the sector. Business activity rose 4.4 points to 54.3 after slipping temporarily below the 50-line designating expansion from contraction in September, while new orders leaped 5.8 points to 56.2. These components have been volatile this year, but suggest current production held up and demand firmed somewhat last month. Order backlogs have come down somewhat as well, perhaps a result of steadier current conditions, though inventories are reported as too high relative to demand.

Source: Insitute for Supply Management and Wells Fargo Economics

Firmer activity looks to have come with more price pressure. The prices paid metric rose to a near-three-year high of 70.0 in October with 16 of the 18 services industries included reporting paying higher prices during the month and just the mining industry reporting declines. This comes despite realized services-consumer disinflation offsetting tariff-induced price pressure on core goods so far this year. While that suggests we may see more pass through to consumer services prices ahead, this survey includes goods-related industries like retail, construction and agriculture.

Service-sector hiring improved somewhat with the employment component rising last month, but at 48.2 it remains consistent with sector-level layoffs. Just four industries reported an increase in employment, including retail trade, which likely included seasonal-workers ahead of the all-important holiday-shopping season. Ten of the 18 included industries reported a decline in employment, though an included comment gets at the no-hire, no-fire labor market: “We have not replaced employees who have left through attrition.”

Separately released data this morning on private hiring from ADP showed a rebound in October hiring after a contraction in September. Even so, the trend in hiring remains weak with this measure slipping to just 3,000 workers hired on average over the past three months with most of the hiring being done at large firms. State-level jobless claims data suggest there’s still a lid on outright firings despite some large companies making announcements in recent weeks. Chair Powell responded to a question about this in last week’s post-meeting press conference saying they’re watching it “very, very, very carefully.”

Source: Institute for Supply Management and Wells Fargo Economics

Chinese Exports Unexpectedly Slump for First Time Since February

Exports fell for the first time in eight months, dropping 1.1% from a year earlier, according to official data released Friday. Shipments to all nations except the US rose 3.1%, not enough to compensate for the more than 25% decline to America.

“If the strength in exports cannot be sustained, China’s growth could face a ‘triple whammy’ from the prolonged contraction in the property sector, and weakened private consumption and exports,” Barclays economists including Yingke Zhou said in a note. (…)

And if the slowdown in demand from the rest of the globe continues, that could pull down shipments and the broader economy in the final two months of the year. Already last quarter China’s economic growth decelerated to the weakest pace in a year even as exports boomed.

It risks an even steeper slowdown in the months ahead. Analysts forecast the weakest growth this quarter since the final three months of 2022, when the nation was nearing the end of debilitating Covid Zero lockdowns.

The weakness looked to be broad in October, when shipments to the European Union climbed 1%, the slowest growth since a drop in February.

Exports to some other major markets fell, with sales to South Korea, Russia and Canada all dropping by double digits. (…)

China’s overall imports slowed sharply in October and grew 1%, leaving a surplus of $90.1 billion.

The yuan provided less of a boost to exports after appreciating this year against the dollar and reaching its strongest in close to a year last month. The gains make Chinese goods relatively more expensive to customers abroad. (…)

The weakness in sales to non-US markets in Latin America and the 10 Southeast Asian nations in the Asean group “hints that the yuan’s relative strength and Mexico’s import curbs are beginning to be a factor,” according to Lee at Lombard Odier Singapore.

Even so, Chinese export prices have fallen in every month but one since mid-2023 due to domestic deflation, compensating for the stronger currency and making shipments cheaper.

As a result, Chinese companies will likely continue to add to the inroads made abroad during the trade war with the US. Signs of a recovery appeared at the end of last month, as the number of containers handled in Chinese ports jumped almost 14% in the week ending Nov. 2.

“While payback effects from earlier front-loading may weigh on export growth somewhat in the coming months, we expect China’s export growth to remain resilient in 2026 on structural tailwinds,” Goldman Sachs Group Inc. analysts led by Xinquan Chen said in a note.

Canada’s Economy Starts to Buckle Under Trump’s Tariffs America’s second-largest trading partner is flirting with a recession and grappling with rising unemployment

(…) The unemployment rate in Ontario, Canada’s most populous province, was 7.9% in September, above the national rate of 7.1%. The rate in the auto-manufacturing hub of Windsor is higher than 11%. The province’s gross domestic product is projected to grow only 0.9% this year and 1.0% next year, according to a report by the Financial Accountability Office of Ontario.

Quebec, home to large steel and aluminum smelters and pulp-and-paper and forestry industries that employ more than 80,000 people, might grow only 0.6% this year and 0.9% next year, according to BMO Economics.

Canadian manufacturing exports, almost all of which go to the U.S., were 15.6% lower in August than in February, the last month before Trump imposed new tariffs, said Dennis Darby, president of the Canadian Manufacturers & Exporters industry group. The sector has lost 35,000 jobs since the end of February, while business investment has stalled. Few companies are willing to invest in existing factories or open new ones as long as trade uncertainty persists, he said. (…)

Tiff Macklem, the governor of the Bank of Canada, last month said the tariff war had “destroyed some of the capacity in this country.” The central bank cut interest rates and issued a forecast of “very modest growth.” The economy shrank by 1.6% in the second quarter, and a rebound in the months since has been tepid. (…)

Carney acknowledged as much on Tuesday. His government laid out a federal budget that proposed capital spending and tax incentives of roughly 280 billion Canadian dollars, or the equivalent of nearly $200 billion, over the next five years to boost investments in the Canadian economy.

The Canadian government’s new spending plans will push Canada’s deficit to its highest levels since the financial crisis. (…)

Canada Services PMI: Return to growth of service sector in October

• Marginal rise in activity despite further fall in new business volumes
• Spare capacity persists and employment down again
• Operating costs rise steeply

A Chinese E.V. Delivers the Host, and a Message, at the Global Climate Summit The climate-friendly ride, part of a fleet assembled to shuttle delegations to the gathering in Brazil, sent a clear signal: China is making inroads in Latin America.

(…) That Brazil chose Chinese electric vehicles as the official means of transporting Mr. Lula and other world leaders sent a clear signal to many: In its quest to transform its roads and its economy, Latin America’s largest nation would be turning to China.

The gesture highlighted the spectacular inroads that Chinese climate technologies have made in Brazil. It also underscored the absence of the United States at this year’s talks, known as COP30, which President Trump is not attending.

“The world is moving on, even without U.S. political and technological leadership,” said Scott Kennedy, a senior adviser at the Center for Strategic and International Studies, a Washington research organization. “With these cars, Brazil is signaling that it has other options.” (…)

While European and American automakers have struggled to pivot to making vehicles powered by electricity, China has gained ground by offering electric cars built with advanced technologies at lower prices than those of competitors like Tesla. This has made Chinese cars especially attractive in developing countries with less spending power. (…)

Chinese electric cars have been rapidly gaining market share in Asia and Europe, now accounting for roughly two-thirds of the global market. In Brazil, the world’s sixth-largest car market, over 80 percent of electric vehicles sold are Chinese.

And Chinese automakers have made it clear that they have even bigger plans for Latin America.

Last month, BYD inaugurated its biggest factory outside Asia, at a plant in Bahia State, in northeastern Brazil, that was once run by Ford. Also this year, GWM, another Chinese company, took over a massive plant that once belonged to the German automaker Mercedes-Benz. The plan is to sell the electric cars produced at these factories across Brazil and the rest of Latin America. (…)

It is already clear whether electric vehicles are leaving a mark on Brazilian cities, including in Belém, a port city of 1.3 million near the mouth of the Amazon River that is frequently choked by traffic.

On a weekday just before the summit kicked off, the streets were gridlocked, but the clouds of exhaust were thinner than they had once been. The roads were dotted with electric cars, humming quietly in the midday traffic. Dignitaries zipped around in convoys made up of GWM pickup trucks, their windows frosted by air-conditioning. Electric buses shuttled passengers around the city.

“This technology is transforming the whole world,” Mr. Kennedy said. “And China has jumped into this space.”

FYI:

Data: Polymarket. Chart: Axios Visuals

Smart AI: learn to learn: https://www.youtube.com/watch?v=bpc0QOAohl8

MANUFACTURING PMIs

USA: Manufacturing Contraction Spreads as Slump Stretches into Eighth Month

In the absence of hard data during the government shutdown, we can turn to purchasing managers to put a finger on the pulse of the underlying dynamics impacting businesses in the current environment. As a reminder the shutdown began on October 1, and the manufacturing ISM was released this morning and the service sector ISM report is due out on Wednesday—both measure economic activity during the month of October.

The ISM manufacturing index slipped 0.4 points to 48.7 and has now been consistent with contraction for eight straight months.The manufacturing sector remains under pressure with demand still weak, the contraction in employment is still underway, and price increases are still present, if somewhat less widespread. In some instances, the pace of contraction was not as broadly based as it was in September, although the respondent comments offered no such indication of diminished headwinds for the manufacturing sector.

Earlier this year, comments regarding tariffs focused more on uncertainty rather than apprehension. That is no longer the case, as is evident in the response from someone in the chemical products space who noted: “Wonder has turned to concern regarding how the tariff threats are affecting our business. Orders are down across most divisions, and we’ve lowered our financial expectations for 2025.”

Source: Institute for Supply Management and Wells Fargo Economics

One of the biggest challenges continues to be around pricing. While a smaller share of manufacturers reportedly paid higher prices for inputs last month, 27.3% versus 32.5% the month prior, at 58.0 the overall prices-paid index is still consistent with a broad expansion of input prices with 14 of the 18 overall industries reporting higher raw material prices in October.

Despite relatively sustained consumer inflation to date, manufacturers are dealing with a challenging pricing environment and comments also suggest future price gains are still likely to be realized. A respondent in the machinery industry commented, “We are trying to keep up with the wild fluctuations and pass along what costs we can to our customers.” Someone from the food, beverage & tobacco industry said, “Tariffs continue to remain difficult to quantify, manage and deal with in general...” And someone from the computer & electronic industry said, “The unpredictability of the tariff situation continues to cause havoc and uncertainty on future pricing/cost…“

Other industry comments focused on realized demand challenges. A respondent from the petroleum & coal industry mentioned decreased domestic demand as did those in the transportation equipment industry, while another from the machinery industry highlighted lower export demand weighing on farm equipment demand.

In many ways the narrative hasn’t changed. Persistent uncertainty around tariff policy is constraining activity, while at the same time, initial anxiety has given way to pricing decisions and demand conditions that will likely keep both inflation sticky and capex orders subdued for some time.

S&P Global’s PMI: Steady growth of US manufacturing sector in October

The performance of the US manufacturing economy improved again in October, with both output and new orders rising at stronger rates. However, growth was domestic led as new exports fell due to tariffs reportedly negatively impacting international trade. (…)

Growth in new work has been registered consistently throughout the year to date, albeit to varying degrees, and panelists noted in October
an uplift in market demand and success in securing new contracts. However, October’s growth was increasingly reliant on the domestic market as new export orders faltered. Exports declined for a fourth successive month and to the greatest degree since July.

Tariffs reportedly remained the primary driver behind the drop in exports, with sales declining to key markets such as Canada, China, Europe and Mexico. (…)

Finally, tariffs remained a key source of higher input costs during October with latest data showing another round of historically elevated inflation – albeit the lowest since February. Selling prices were raised markedly in response, and to a quicker degree than September’s recent low.

GDP IS HOT

The Atlanta Fed’s GDPNow model estimate for real GDP growth in Q3-2025 is 4.0% (saar) today, up from 3.9% on October 27 (chart). After this morning’s Manufacturing ISM Report on Business from the Institute for Supply Management, the nowcast of Q3 real gross private domestic investment growth increased from 4.4% to 4.6%. (…)

Before the shutdown, the Bureau of Economic Analysis revised the growth rate in Q2’s real GDP up to 3.8%. Also before the shutdown, the Bureau of Labor Statistics revised payroll employment down significantly, with the result that it rose just 29,000 per month on average during the three months through August. Together, this suggests that whenever the government reports productivity, its growth rates for Q2 and Q3 should be very strong.

• Without data centers, US GDP grew only 0.1% in H1 2025

The US economy may not be as strong as it looks, warns Harvard economist Jason Furman. According to his latest analysis, almost all of America’s economic growth in the first half of 2025 came from one source, data centers and information processing technology, as per a report.

Furman shared his findings in a post on social media platform X (formerly Twitter), revealing that if investment in data centers and related technology were excluded, US GDP growth would have been just 0.1% on an annualized basis, as per a Fortune report.

His findings were supported by financial analysts, including Robert Armstrong of the Financial Times’ Unhedged, who have noted the sharp rise in data center buildouts to GDP growth in 2025 had, for the first time, surpassed US consumer spending, which usually makes up two-thirds of GDP, as per the report.

Furman pointed out that investment in information-processing equipment and software made up only 4% of total US GDP in the first half of 2025 but accounted for 92% of the country’s GDP growth during that period, according to Fortune. He said it’s unlikely the economy would have completely stalled without this boom, saying that “absent the AI boom we would probably have lower interest rates [and] electricity prices, thus some additional growth in other sectors. In very rough terms that could maybe make up about half of what we got from the AI boom,” as quoted by Fortune. (…)

The tech-driven expansion comes as other parts of the economy struggle, as per the report. Job creation has slowed, and sectors such as manufacturing, real estate, retail, and services have contributed little or even detracted from total output in early 2025, as per the Fortune report.

• Bessent Says Some ‘Sectors’ Of Economy Are In Recession

In an interview with CNN’s “State of the Union” on Sunday, Bessent said he believed the economy was in a “transition period,” noting that the Trump administration has cut government spending, which he blamed for high inflation after the COVID-19 pandemic.

Bessent told CNN’s Jake Tapper he believes “we are in good shape,” despite some sectors of the economy being “in recession,” which he blamed on Federal Reserve policies.

The treasury secretary gave the housing market as an example, insisting “if the Fed brings down mortgage rates, they can end this housing recession.”

From the Q3 earnings and corporate comments (see below), larger companies are not seeing any signs of recession, yet.

CONSUMER WATCH

• “U.S. payments volume was up 8%…reflecting resilience in consumer spending…we saw a broad-based strength, including improvements in retail services and goods, travel and fuel. Both discretionary and nondiscretionary spend were up from Q3. And growth across consumer spend bands remained relatively consistent with Q3 with the highest spend band continuing to grow the fastest.” — Visa (V ) CFO Christopher Suh
• “We continue to see healthy consumer and business spending in the quarter with the macroeconomic environment still generally supportive. What we’re seeing is continued steady growth, both across affluent and mass market, through in the U.S. through across the globe. So overall, the consumer continues to spend. And really, everything we’re seeing so far is manifesting itself in the drivers which we’re talking about right here.” — Mastercard (MA ) CFO Sachin Mehra
• “We expect our December quarter total company revenue to grow by 10% to 12% year‑over‑year, which will be our best quarter ever. We expect iPhone revenue to grow double digits year‑over‑year, which would be our best iPhone quarter ever.” — Apple (AAPL ) CFO Kevan Parekh
• “During this whole time, the underlying transaction trend remained under pressure. And in recent weeks has softened even further… A particularly challenged cohort is the 25‑ to 35‑year‑old age group.” — Chipotle Mexican Grill (CMG ) CEO Scott Boatwright
• 25% of the US Population Are Subprime (Apollo)
• Since last week, inflation has increased from 2.30% to 2.71%. This change in inflation was mainly driven by the following categories: – Health, Household & Daily Items, Clothing, Education, Recreation & Culture, Others (Truflation)

AI WATCH

From The Transcript and others:

• “We are adding capacity at an unprecedented scale. We will increase our total AI capacity by over 80% this year and roughly double our total data center footprint over the next 2 years, reflecting the demand signals we see. Just this quarter, we announced the world’s most powerful AI data center, Fairwater in Wisconsin, which will go online next year and scale to 2 gigawatts alone.” Microsoft (MSFT ) CEO Satya Nadella
• “With accelerating demand and a growing RPO balance, we’re increasing our spend on GPUs and CPUs. Therefore, total spend will increase sequentially, and we now expect the FY ‘26 growth rate to be higher than FY ‘25.”  “This quarter, demand again exceeded supply across workloads, even as we brought more capacity online…we now expect to be capacity constrained through at least the end of our fiscal year…we are not demand constrained, we are supply constrained.” “This quarter, roughly half of our spend was on short-lived assets, primarily GPUs and CPUs…The remaining spend was for long-lived assets that will support monetization for the next 15 years and beyond.” “Microsoft had $400 billion in future sales under contract. That’s for booked business. Today. The number did not include the $250 billion in computing power that OpenAI committed to buy this week” .Microsoft (MSFT ) CFO Amy Hood
• “On the capacity side, we brought in quite a bit of capacity, as I mentioned in my opening comments, 3.8 gigawatts of capacity in the last year with another gigawatt plus coming in the fourth quarter and we expect to double our overall capacity by the end of 2027. So we’re bringing in quite a bit of capacity today, overall in the industry, maybe the bottleneck is power. I think at some point, it may move to chips, but we’re bringing in quite a bit of capacity. And as fast as we’re bringing in right now, we are monetizing it.” “Backlog grew to $200 billion by Q3 quarter end and doesn’t include several unannounced new deals in October, which together are more than our total deal volume for all of Q3.” “We’ve recently brought Project Rainier online, our massive AI compute cluster spanning multiple U.S. data centers and containing nearly 500,000 of our Trainium2 chips. Anthropic is using it now to build and deploy its industry-leading AI model cloud, which we expect to be on more than 1 million Trainium2 chips by year-end. Trainium2 continues to see strong adoption, is fully subscribed, and is now a multibillion-dollar business that grew 150% quarter-over-quarter.” “We’ve been focused on accelerating capacity the last several months, adding more than 3.8 gigawatts of power in the past 12 months, more than any other cloud provider. To put that into perspective, we’re now double the power capacity that AWS was in 2022, and we’re on track to double again by 2027. In the last quarter of this year alone, we expect to add at least another 1 gigawatt of power.” Amazon (AMZN ) CEO Andrew Jassy
• “Looking ahead, we expect our full year cash CapEx to be approximately $125 billion in 2025, and we expect that amount will increase in 2026.” — Amazon (AMZN ) CFO Brian Olsavsky
• “We now expect CapEx to be in the range of $91 billion to $93 billion in 2025, up from our previous estimate of $85 billion…Looking out to 2026, we expect a significant increase in CapEx, and we’ll provide more detail on our fourth quarter earnings call.” Alphabet (GOOGL ) CFO Anat Ashkenazi
• “Cloud had another great quarter of accelerating growth with AI revenue as a key driver. Cloud backlog grew 46% quarter-over-quarter to $155 billion.” “Our highly sought-after TPU portfolio is led by our 7-generation TPU, Ironwood, which will be generally available soon. We are investing in TPU capacity to meet the tremendous demand we are seeing from customers and partners, and we are excited that Anthropic recently shared plans to access up to 1 million TPUs.” Alphabet (GOOGL ) CEO Sundar Pichai
• “We’ve been building TPUs for 10 years, so we now have seven generations in production for internal and external use. Our seven- and eight-year-old TPUs have a hundred percent utilization, right? And that just shows what the demand is. Everyone, of course, prefers to be on the latest generation, but they’ll take whatever they can get. So this tells me that the demand is tremendous.” “The challenge here though, is as you said, that we’re limited by power. We’re limited by transforming land. We’re limited by permitting…I heard in the previous session some of the discussions of the trillions of dollars that we’re gonna be spending, which I think is accurate. I’m not sure that we’re gonna be able to cash all those checks. In other words, literally you all have some money. You can’t spend it all as fast as you want. I think that’s going to extend for 3, 4, 5 years.” Alphabet (GOOGL ) VP and GM of AI & Infrastructure Amin Vahdat
• “Our current expectation is that CapEx dollar growth will be notably larger in 2026 than 2025…We currently expect 2025 capital expenditures, including principal payments on finance leases to be in the range of $70 billion to $72 billion, increased from our prior outlook of $66 billion to $72 billion.” Meta Platforms (META ) CFO Susan Li
• “But to date, we keep on seeing this pattern where we build some amount of infrastructure to what we think is an aggressive assumption. And then we keep on having more demand to be able to use more compute.” Meta Platforms (META ) Founder Mark Zuckerberg
• “We’re definitely really excited about the prime power opportunity with data centers and more broadly, just the demand for power that data centers and broader trends in the industry are putting onto the grid. We’re going to see a lot more of this.” Caterpillar (CAT ) CEO Joseph Creed
• “Our load growth forecast is big, conservative, and drives our capital strategy. First, it is big. In this quarter alone, approximately 2 gigawatts of data center load came online, roughly equivalent to two large-scale nuclear power plants. For the 28 gigawatts of forecasted additions, this is equivalent to almost doubling our current system. Customers behind this growth are substantial, with approximately 80% coming from data processors, including large hyperscalers such as Google, AWS, and Meta.” American Electric Power (AEP ) CFO Revor Mihalik
• “We continue to see robust demand from data centers. We now have approximately 47 gigawatts in various stages of contracting as of September 2025, which compares to around 40 gigawatts as of December 2024, an increase of 7 gigawatts or 17%… There are also now about 9 gigawatts of data center demand that have executed construction letters of authorization… This compares to just over 5 gigawatts in December 2024 and represents an approximately 73% increase.” Dominion Energy (D ) CEO Robert Blue
• “I would say right now that because there’s not enough power singularly in one location, data centers are being built where the power is available rather than power being brought to where the data centers are. And that’s why you’re seeing a lot of projects that are being built out all throughout the world.” Cisco (CSCO ) CPO Jeetu Patel
• “Look, I think the supply-demand mismatch is so large that everybody who has a solution that’s viable today has a market out there for them to address. You are going to see data center developers, hyperscalers wanting any and every solution that they can find.” “Look, I have been to these capitals, whether it is Frankfurt, whether it’s Munich, whether it’s Dublin, whether it’s Taipei. They all have a power shortage problem, and they all clearly recognize that their central power plants along with transmission distribution cannot keep up with AI speed. That’s across the board. This is true in Delhi. This is true in Mumbai. What is happening in Europe, Asia, if you take as an example? I was just recently in Tokyo, and what I heard there is finally the sentiment of natural gas not just being a short-term bridge, but a long-term solution. The agreements the U.S. is reaching with our friendly countries, our friendly allies, to say, ‘We will supply you long-term LNG,’ is now making them take a very different look at natural gas.” — Bloom Energy (BE ) CEO KR Sridhar
• “Demand for scalable connected infrastructure remains robust across a wide range of customer segments from global cloud platforms to regional service providers and multinational enterprises. Meeting this demand within our markets, however, is becoming increasingly challenging. Power availability, permitting challenges and infrastructure constraints are making it harder to bring new supply online at the pace our customers require.” — Digital Realty Trust (DLR ) CFO Andrew Power
• “Well, [power] is without a doubt the constraint, and it’s become more of a constraint. It’s a constraint for anybody that’s doing land work in data centers. It’s a constraint for the co-locators. It’s a constraint for the hyperscalers as they try to expand.” — CBRE Group (CBRE ) CEO Robert Sulentic
• “This rapid growth in power demand in the US will tighten local power markets, which have been facing increased utilization rates of existing infrastructure. While we do not expect the US power market to reach critical tightness on a national level before 2030, rapid growth and sustained geographic concentration in data centers support our view that major US regional power markets are likely to become critically tight in the coming years, which in turn could constrain future data center and total power demand growth until infrastructure bottlenecks are resolved.” (Goldman Sachs)

BUBBLE WATCH

• “At the peak of the telecom bubble, 97% of fiber optic cables were “dark” i.e. not being used. There are no dark GPUs today.” Gavin Baker, Managing Partner and CIO of Atreides Management
• In the FT:

• Berkshire’s Cash Pile Hits A Record $382 Billion Amid Continued Stock Sales As T-Bill Purchases Soar (ZeroHedge). Does that fit in this section?

EARNINGS WATCH

Super-Duper Earnings (Ed Yardeni)

S&P 500 companies’ aggregate forward earnings per share rose to yet another record high during the week of October 30 of $299.61. It is nearly at the $300 we have been predicting it would reach by the end of this year; clearly, the year-end level will be higher than that. We expect forward earnings to rise to $350 per share by the end of 2026.

The Q3 earnings season is beating expectations, even though industry analysts didn’t lower their estimates as they did before the Q1 and Q2 earnings seasons, which also beat expectations significantly.

At the start of the current earnings season, industry analysts projected an increase of just over 6%. The blended growth rate is over 10% so far.

Super-Duper is understatement. The 315 companies having reported so far showed earnings up 15.7% on revenues up 8.4%.

Here’s LSEG IBES:

315 companies in the S&P 500 Index have reported earnings for Q3 2025. Of these companies, 83.2% reported earnings above analyst expectations and 12.4% 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, 77% of companies beat the estimates and 18% missed estimates.

In aggregate, companies are reporting earnings that are 8.3% 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 7.1%.

Of these companies, 80.1% reported revenue above analyst expectations and 19.9% 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, 67% of companies beat the estimates and 33% missed estimates.

In aggregate, companies are reporting revenues that are 2.2% 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 1.5%.

The estimated earnings growth rate for the S&P 500 for 25Q3 is 13.8%. If the energy sector is excluded, the growth rate improves to 14.7%.

The estimated revenue growth rate for the S&P 500 for 25Q3 is 7.5%. If the energy sector is excluded, the growth rate improves to 8.2%.

The estimated earnings growth rate for the S&P 500 for 25Q4 is 7.7%. If the energy sector is excluded, the growth rate improves to 8.1%.

Analysts are trying to catch up:

Goldman Sachs’ David Kostin makes 8 observations from the earnings season so far:

• The frequency of earnings “beats” has been unprecedented: 64% of S&P 500 companies that have reported results have beaten consensus EPS forecasts by at least a standard deviation of estimates. In our 25-year data history, this frequency of earnings surprises has been surpassed only during the COVID reopening period in 2020-2021.

 

• Earnings beats have been driven by both sales and margins.
• Investors are not rewarding most earnings beats. One explanation for the mediocre reward for beats is that investors view results this quarter as less informative for the forward earnings outlook than in the typical quarter.
• S&P 500 Q3 2025 EPS growth is tracking at 8% year/year, a continued deceleration. Although reported earnings growth has indeed exceeded the consensus forecast so far, the 8% run-rate of S&P 500 EPS growth in 3Q represents a deceleration relative to the 11% growth rate reported in 2Q and a smaller EPS beat than during the last few quarters. [This 8% does not jive with LSEG data above but GS uses median earnings, very different from S&P’s]. Since the start of the earnings season, the consensus estimate for 2026 EPS has been revised higher by 2% and now registers $308. [$305 officially. Yardeni’s $350 forward EPS by the end of 2026 is already in].



• Company guidance and analyst earnings revisions have been solid. So far, 49 companies have provided guidance for 4Q earnings. Of these, 43% have guided quarter-ahead EPS above consensus estimates, above the quarterly average of 40% during the past decade.

• Mega-cap AI capex spending continues to exceed expectations. Consensus estimates for hyperscaler capex spending in 2026 have risen from $314 billion at the start of the year to $458 billion at the start of the earnings season to $518 billion today. Current consensus estimates show the hyperscalers boosting capex spending by 29% in 2026, compared with an estimate of 19% expected at the start of the reporting season. The post-earnings share price performance of the mega-cap tech stocks reporting this week suggests investor willingness to accept capex spending growth is dependent on the strength of earnings growth and the perceived ability to monetize AI investments. For example, while GOOGL and META each signaled above-consensus plans for 2026 capex spending this week, GOOGL shares rallied following its report as 3Q 2025 beat estimates and analysts raised 2026 EPS expectations, while META shares declined as EPS missed estimates and 2026 estimates remained relatively steady.
• Large-cap US companies are increasingly focused on labor efficiency. A wave of S&P 500 layoff announcements has broken during the past two weeks. Nine S&P 500 companies have announced layoff plans during the past two weeks, bringing the total number of S&P 500 firms announcing layoffs since the start of September to 17. Total announced layoffs for these companies amounts to roughly 82,000 jobs. This represents only 2% of these companies’ collective workforces, but has reinvigorated some investors’ concerns about the broad US labor market slowdown that has taken place in 2025. Our economists’ have found little empirical evidence that AI adoption has weighed meaningfully on the overall labor market so far but expect adoption will eventually displace roughly 7% of the US workforce at its peak. 49% of S&P 500 companies reporting so far this quarter have mentioned the potential for AI-related efficiency gains on their conference calls. This represents a modest increase from the 45% rate during 2Q and falls in the range of other survey measures of AI adoption such as surveys from the Census Bureau and a recent survey of Goldman Sachs investment bankers on how clients are using AI.
• Bank lending and the corporate credit cycle are under scrutiny.

About profit margins (Callum Thomas)

The black line is the median profit margin across 45 countries, and again this chart helps understand a couple of things.

First is the USA has generally been outperforming the median global profit margin over the past decade (helps explain the US vs global stocks relative stock price outperformance). Second, global has been turning up off the 2024 lows; which helps explain the better performance from global stocks over the past year.

But it also goes to show how extraordinary the current run in US profit margins is both vs history and vs the global experience. And that along with those issues around circular funding in the AI space may prompt some to ponder about the sustainability of the current surge in US profit margins (especially given how profit margins tend to be highly cyclical and have a long-running tendency to mean revert).

But, maybe we should not be talking of US profit margins but rather US tech profit margins:

Interestingly while US tech stock profit margins are at a cyclical + structural high, non-tech stock profit margins on the other hand peaked a few years back and have reverted back to trend.

Source:  Topdown Charts Professional

“While earnings are bullish, sentiment is bearish in the very short term. There are too many bulls (Ed Yardeni).