May Take More to Rain on This Consumers Parade

The household sector continues to demonstrate resilience through uncertainty. Overall consumer spending rose 0.4% in August on an inflation-adjusted basis. While strength in spending wasn’t concentrated in any one consumer segment, growth in discretionary purchases stands out to us.

Recreational goods (which includes anything from board games to recreational vehicles) jumped 3.3% in August, made more impressive following a 2% gain the month prior.

Clothing sales were also another bright spot, up 1.1% last month, marking the fourth straight monthly gain and ninth in eleven months in real inflation-adjusted terms. On the services side, the largest gains came from recreational services and transportation services.

Continued discretionary spending tells us that, even as household wallets have shifted this year in an effort to mitigate tariff-induced uncertainty, consumers haven’t gone into hiding and are still spending. That’s because they still broadly have the means to consume today.

Inflation is a challenge in that it’s become sticky, running above the Fed’s 2% annual target. Households are contending with the compounding nature of price increases since the pandemic, like the higher prices for necessities or non-discretionary purchases including groceries, electricity and housing. This may be crimping their ability to spend elsewhere, but it’s not halting it.

The normalization in gas prices with the average price of a gallon of gas running at a recent low in August (~$3.36) also could be providing some reprieve to budgets last month.

At the end of the day, most households are still enjoying steady income growth—personal income rose 0.4% last month. While the jobs market has softened, the still-low unemployment rate and small number of people filing for unemployment insurance suggests most of the population looking for work is still employed and thus clipping a paycheck. These dynamics are intertwined—a household sector in better shape than the data previously indicated also helps explain why firms aren’t letting go of workers even as hiring has slowed. The demand is still there. (…)

Real disposable income growth, a measure of household purchasing power, was revised up more than spending was. The personal saving rate came up as a result and was at 4.6% in August, suggesting a bit more financial cushion.

Today’s data suggest there is considerable upside risk to our estimate of Q3 spending and broader GDP growth. Our current forecast puts real personal consumption expenditures up at a 1.5% annualized clip in the third quarter. The August data along with the revisions suggests consumption could rise twice as fast in Q3. (…)

Goldman Sachs boosted its Q3 GDP tracking estimate by 0.2pp to +2.8% a.r., reflecting stronger consumer spending in August and a more favorable monthly path between Q2 and Q3 than previously assumed. Q3 domestic final sales estimate now stands at +1.9%.

Fifty years in this biz thought me to beware the consensus.

True, the American consumer has been a blessing to the economy amid incredible turmoil.

This in spite of very low, like 2008-09 lows, measures of consumer sentiment!

In September 2023, I wrote The Wealth Defect, showing that when inflation-adjusted household net worth rose rapidly above trend like in the late 1990s, the mid-2000s and recently, expenditures grew faster than income, i.e. the savings rate declined.

From a monetary policy perspective, the wealth effect is now a wealth defect: high interest rates have had little impact on a very wealthy, under leveraged, consumer looking to enjoy life AMAP (as much as possible) post pandemic.

Households’ real net worth strongly deviated from trend after the pandemic as equity and home prices meaningfully outpaced inflation. Real expenditures, generally in sync with real incomes, have increased 8.4% since 2022 far outpacing real labor income up 5.5%.

Real net worth, up 33% since 2019, is now 20% above trend. Even middle income Americans are enjoying the recent bounty.

At the end of June, 50.5% of US household financial assets were in equities. Previous peaks were 48.1% in 2021 and 45.2% in 2000.

Lower interest rates can only amplify this wealth effect through potentially higher equity and home prices.

But we are about to test this wealth effect more seriously.

So far this cycle, increasing wealth was supplemented by rising real disposable income (or vice-versa). But in just 4 months, from April to August, PCE inflation accelerated from 2.3% YoY to 2.7%. As a result, real disposable income has flattened. But Americans dipped into their savings and kept spending.

However, their spending pattern changed: spending on durable goods, the most discretionary and hitherto strongest category, has become very volatile and has been essentially flat since November 2024, no longer contributing to the rise in expenditures.

Time will tell how ominous that is but slowing labor income growth (black below) could pull spending growth down to the 4.5% range which, with inflation close to 3.0%, could slash spending growth by nearly half to the 1.5% range.

And just when the Fed is closing its eyes on inflation, pressures are mounting. Services inflation has stabilized above 3.5% (though core Services was up 4.1% a.r. in August) and goods inflation jumped from –1.2% one year ago to +0.9% in August, a sharp 2.1% swing, adding 0.5pp to total PCE inflation. Core PCE inflation is now 2.9% vs 2.6% in April.

Prices of goods are pushed upwards by tariffs and by increasing scarcity as imports are falling. The National Retail Federation expects import volumes down 3.4% in 2025, translating into the remaining four months of 2025 being down 15.7% YoY. Bookings for containers moving from China to the U.S. the first week of September were down 26% YoY.

“The downward turn will be due solely to tariffs and unfortunately, there is nothing at present that suggests it will be short-lived,” shipping expert John McCown said. “For a tangible metric that has consistently for decades grown above U.S GDP, most often at two, three or even more multiples of GDP, the unusual nature of an actual decline in inbound container volume into the U.S. cannot be overemphasized,” McCown states.

Demand vs supply. The coming holiday season will be an interesting test, and not only for the less wealthy, and often more indebted, segment of the population.

ADG tells us that “Newly minted Fed governor Stephen Miran continues to put his dovish bona fides on full display, declaring on CNBC Friday that “I don’t see any material inflation from tariffs”.

But, in the real world, there is inflation on materials:

Goods sector inflation ticked to a 1.49% year-over-year clip in August from zero this spring, the Bureau of Labor Statistics finds, with the three-month annualized pace accelerating to 2.77%.

As Bianco Research points out today, privately-compiled metrics paint an even starker picture: Data sifted by Truflation show a 1.98% rise in the price level since April 2 “Liberation Day,” equivalent to a 4.22% annualized rate. 

Then, too, price data from four major U.S. retailers show a 3.7% annual uptick in imported goods impacted by tariffs over the same period per research firm PriceStats, while products originating from China are tracking at a 5.1% annual rate of inflation. “This is a problem,” Bianco concludes. (ADG)

US Consumer Sentiment Falls to Four-Month Low on Income Worries

(…) Consumers expect prices to rise at an annual rate of 4.7% over the next year, data released Friday showed. That was down slightly from both the preliminary September reading and the prior month. They saw costs rising at an annual rate of 3.7% over the next five to 10 years, up from August.

“Consumers continue to express frustration over the persistence of high prices, with 44% spontaneously mentioning that high prices are eroding their personal finances, the highest reading in a year,” Joanne Hsu, director of the survey, said in a statement. (…)

While sentiment declined among most income groups, it held steady for those with larger holdings of stocks. (…)

Labor demand vs supply:

AI CORNER

Walmart CEO Issues Wake-Up Call: ‘AI Is Going to Change Literally Every Job’ Head count expected to stay flat over next three years, despite growth plans, as AI eliminates or transforms roles

Walmart executives aren’t sugarcoating the message: Artificial intelligence will wipe out jobs and reshape its workforce.

Now the country’s largest private employer is making plans to confront that reality.

“It’s very clear that AI is going to change literally every job,” Chief Executive Doug McMillon said this week in one of the most pointed assessments to date from a big-company CEO on AI’s likely impact on employment.

His remarks reflect a rapid shift from just months ago in how business leaders discuss the potential human cost of the technology. Companies including Ford, JPMorgan Chase and Amazon have bluntly predicted job losses associated with AI. Some have advised other employers to prepare their workforces for change.

Some jobs and tasks at the retail juggernaut will be eliminated, while others will be created, McMillon said this week at Walmart’s Bentonville headquarters during a workforce conference with executives from other companies. “Maybe there’s a job in the world that AI won’t change, but I haven’t thought of it.” (…)

Company leaders say they are tracking which job types decrease, increase and stay steady to gauge where additional training and preparation can help workers. (…)

For now, Walmart executives say the transformation means the size of its global workforce will stay roughly flat even as its revenue climbs. It plans to maintain its head count of around 2.1 million global workers over the next three years, but the mix of those jobs will change significantly, said Donna Morris, Walmart’s chief people officer. What the composition will look like remains murky.

“We’ve got to do our homework, and so we don’t have those answers,” Morris said.

Already Walmart has built chat bots, which it calls “agents,” for customers, suppliers and workers. It is also tracking an expanding share of its supply chain and product trends with AI. (…)

Some changes are already rippling across the workforce. In recent years Walmart has automated many of its warehouses with the help of AI-related technology, triggering some job cuts, executives said. Walmart is also looking to automate some back-of-store tasks.

New roles have been established, too. Walmart, for example, created an “agent builder” position last month—an employee who builds AI tools to help merchants. It expects to add people in areas like home delivery or in high-touch customer positions, such as its bakeries. The company has also added more in-store maintenance technicians and truck drivers in recent years.

Across the industry, the pace of change will be gradual, said McMillon. For example, customer service tasks in call centers and through online chat functions will become more AI dependent soon and other tasks not, McMillon said. (…)

Elsewhere in the corporate world, top executives are pushing their companies to wholeheartedly embrace AI—and quickly. Some have created internal “heat maps” to decipher which roles or tasks could be automated by AI. Others have pushed staffers to propose new projects. (…)

“AI is just starting to ripple through the job market,” said Ronnie Chatterji, OpenAI’s chief economist, at the Bentonville conference. “I think 18 to 36 months, you’re going to see a lot more impact.” Earlier this month, OpenAI unveiled a partnership with Walmart and other companies to design an AI-training certificate program.

The drumbeat of warnings about AI-related job cuts has increased in recent months. Accenture CEO Julie Sweet told investors Thursday that the firm is “exiting” employees who can’t be retrained for the AI age. Meanwhile, it will continue to hire people who are generative AI-fluent and retrain existing workers to serve clients in consulting and other divisions. “Artificial intelligence is going to replace literally half of all white-collar workers in the U.S.,” Ford Motor Chief Executive Jim Farley said this summer. (…)

Recall Amazon’s Andy Jassy last June saying that Amazon will reduce headcount “as we get efficiency gains from using AI. It’s hard to know exactly where this nets out over time, but in the next few years, we expect that this will reduce our total corporate workforce as we get efficiency gains from using AI.”

WMT + AMZN = 2.6M jobs in USA.

So far, layoffs have not increased and remain in line with pre-pandemic levels. The layoffs rate in IT is not abnormal.

Productivity saves the day:

Trump Is Adding More Tariffs. Will They Spur U.S. Production?

(…) Shearing and others say duties of 50% on kitchen cabinets, bathroom vanities and other similar products probably still aren’t high enough to bring production back to the U.S. because of the high cost of American labor, they say. (…)

Duties of 100% on patented drugs, whose production is more capital intensive, are in theory high enough to drive companies to produce here, they say. But many multinationals—from Johnson & Johnson to Pfizer and Merck—already have plants in the U.S. and therefore might qualify for exemptions. Many patented drugs also come from the European Union, which already struck a deal with the U.S. to cap duties on the bloc’s goods at 15%.

Meanwhile, the U.S. imports about 78% of its heavy trucks from Mexico and 15% from Canada. Goods from those two countries that can be shown to largely contain U.S. content are largely exempted from tariffs altogether, under a treaty made during the first Trump administration known as USMCA. So far, many imported cars and auto parts from Mexico and Canada appear to be exempt from the 25% because of USMCA. (However, steel and aluminum from those countries remain subject to 50% duties, a legacy of Trump’s earlier metal tariffs.) (…)

Trump’s tariffs don’t apply to generics [and] generics account for only 10% of drug spending, but make up 90% of U.S. drugs consumption by volume. (…)

Many patented drugs can’t be substituted with generics for example, so the cost of many tariffs in that sector will be borne heavily by American hospitals, insurers and patients. (…)

Domestic manufacturers that need raw materials are now facing higher prices on an array of parts, from metals to electronics, largely due to the effect of tariffs. Steel for example now costs $960 per ton in the U.S., compared with a world average of $440, according to the U.S. Commerce Department. For some goods, switching to domestic suppliers sometimes isn’t possible.

Manufacturing as a share of U.S. GDP has been on the decline for decades. But Ed Gresser, director for trade and global markets at the Progressive Policy Institute, said, “it may be accelerating now because you’re adding so many costs to making things in the U.S.”

This next item could be related to all of the above…

Panic-Inducing Rumors Went Viral Ahead of the French Revolution Researchers use the tools of epidemiology to trace how false tales spread from place to place, and provoked a revolt

For centuries, historians have debated whether the “Great Fear” panic in the early days of the French Revolution was driven by the mass hysteria of ignorant peasants or a rational response to the famine and economic conditions of the day.

To figure it out, Italian researchers applied modern-day tools of epidemiology to trace how the rumors that provoked the upheaval spread across France.

The findings, published in the journal Nature, could offer insights into how unrest erupts today—for example, the recent “Block Everything” protests occurring across France in opposition to public-spending cuts.

In the summer of 1789, French peasants formed militias to combat bandits rumored to be attacking towns and villages, destroying crops and terrorizing peasants. When the brigands, which were believed to be acting with the support of nobles, didn’t materialize, the peasants turned against castles to destroy land titles held by local lords. (…)

The rumors, they found, were more likely to affect towns and cities with more-educated populations, rather than small villages with less-educated residents, according to Stefano Zapperi, a physics professor at the University of Milan and an author on the study. In addition, regions with high wheat prices—and hence higher food prices—were more likely to be “infected.”

Although the rumors of bandit attacks were false, the Great Fear spread according to a logical pattern linked to the social and political conditions of the time, the study’s authors said.

“Cities or areas that had suffered most had more incentive to revolt, in this sense, because the conditions were harsher,” Zapperi said. (…)

The wave of unrest and the French Revolution ended the medieval landholding system of feudalism and changed the nation’s political system. The monarchy was removed.

“The Great Fear can also be seen as a reaction to perceived threats, especially to grain and property, rather than to real brigandage,” the authors wrote.

Geographical and physical proximity were important for the Great Fear to spread from town to town by horseback, the authors said.

Today, you don’t need a horse.

Social unrest and panic can be accelerated through social media, according to Brian Uzzi, professor of leadership at Northwestern University. He has studied mob psychology and how social unrest spreads in the U.S.

“Social media is considered a facilitator or a catalyst,” Uzzi said. “It spreads content, but it also spreads emotions, and emotions are contagious.”

This time around, income inequalities, shelter affordability, highly divisive politics and politicians, a weakening rule of law, low respect for institutions, exploding corporate profit margins post pandemic, etc….

This chart show how real wages used to be in reasonable sync with productivity until the pandemic. Since then, productivity jumped by 11% and profit margins exploded by 50%! Real wages: +5.3% over 5 years. Real GDP: +15%.

Immigration can also become a serious issue in the US. The white population, 61% of the total in 2020, is projected to decline to 44% by 2060, although recent politics might change that…

CFOs Report Increased Optimism as Uncertainty Fades

The outlook for the U.S. economy among financial decision-makers improved somewhat in the third quarter of 2025, as uncertainty declined. However, concerns about the impact of tariffs on prices and business performance continued to weigh on firms, according to the CFO Survey, a collaboration of Duke University’s Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta.

Uncertainty remains a top concern of financial decision-makers, but it dropped in importance from second highest in the second quarter to seventh in the third quarter. (…)

For the third consecutive quarter, tariffs and trade policy were the top concern among survey respondents, followed by monetary policy and inflation. The firms that cited tariffs as a top concern were notably more downbeat about the economy and their own firm. Specifically, these firms:

• Were less optimistic about the U.S. economy (59.9 for the tariff-concerned group versus 64.3 for those unconcerned)
• Projected lower real GDP growth for the year ahead (1.6 percent versus 2.0 percent)
• Had lower revenue and employment growth expectations for 2025
• Forecasted notably higher input cost growth in 2025 and 2026
• Expected higher price growth in 2025 and 2026

Overall, CFOs projected that tariffs would have a big impact on price growth: On average, price growth would be about 30 percent lower in 2025 and roughly 25 percent lower in 2026 without the addition of tariffs, indicating that firms expect to grapple with tariff-related price increases into 2026. Meanwhile, almost a quarter of firms continued to report that they will decrease capital spending in 2025 due to tariffs.

• What Do Tariff Concerns Mean for CFOs’ Outlooks?

When asked for the most pressing concerns facing their firms, nearly 40 percent of respondents to the Q2 CFO Survey cited tariffs or trade policy — compared to 30 percent last quarter. In both surveys, CFOs cited trade policy at least twice as often as any other concern. (…) This quarter, we analyze the expectations of tariff-affected firms (the 40 percent citing tariffs as a top concern) and compare them to non-tariff-affected firms (those that do not list tariffs as a top concern).

Economy-wide optimism for tariff-affected firms averaged 57.5 (versus 63.2 for those not affected), and own-firm optimism averaged 66.2 (versus 69.4). Similarly, while CFOs’ expectations for real GDP growth declined overall from last quarter, tariff-affected firms expect GDP to grow by 1.1 percent over the next four quarters, compared to 1.6 percent among non-affected firms. Affected firms also report a 26 percent chance of real GDP contraction (compared to a 20 percent chance among their peers). This suggests that firms’ economic outlooks vary notably depending on whether they are affected by tariffs.

CFOs whose firms are affected by tariffs also report starkly dimmer outlooks for their own firms. Compared to non-affected respondents, tariff-affected firms expect higher input cost growth (6.6 percent growth in unit costs in 2025 vs. 3.9 percent for non-tariff-affected firms) and higher growth in prices for their products and services (6.6 percent vs. 3.2 percent) in 2025.

CFOs of affected firms also anticipate growth in costs and prices to remain elevated through 2026. Meanwhile, they anticipate lower revenue growth (4.8 percent vs. 5.9 percent) and employment growth (1.5 percent vs. 3.3 percent) in 2025. These responses imply that tariff-affected firms expect real revenue growth to shrink in 2025, as expected price growth outpaces projected nominal revenue growth.

Around 62 percent of tariff-affected firms have or expect to pass associated cost increases on to their customers, versus 27 percent of non-affected firms. Firms passing through these costs expect to pass much of the price increases on to customers (the median expected pass-through was 100 percent).

Additionally, over 30 percent of tariff-affected firms have or expect to absorb some cost increases, move up purchases, and revise their 2025 business plans in response to trade developments. Meanwhile, nearly 40 percent of those not affected by tariffs indicate they would take none of the actions listed in response to trade developments, compared to only 7 percent of tariff-affected firms.

The Credit Market Is Humming—and That Has Wall Street On Edge Concerns mount that a frothy market is concealing signs of excess; sudden bankruptcies rattle investors

Investors are gobbling up corporate debt like it is going out of style—even though the rewards, by some measures, are lower than they have been in decades. The frothy mood has some on Wall Street worried that the market is priced for perfection and ripe for a fall. (…)

One concern is that lending to riskier borrowers has been growing for years, first through traditional bonds and loans, then in the form of private credit and the revival of complex asset-backed debt. The longer that credit boom lasts, the more likely it is that defaults will rise. Likewise, the higher the valuations of corporate bonds and loans, the more susceptible they become to selloffs. (…)

The overarching concern on Wall Street is that the exceptionally high valuations for corporate debt are concealing excesses in the market and insufficiently compensating investors for taking risks.

That is visible in the paltry additional yield, or spread, that investors are getting by holding investment-grade corporate bonds compared with ultrasafe U.S. Treasurys. That figure fell to 0.74 percentage point in September, its lowest level since 1998, according to ICE Data Indices. The spread for junk-rated bonds is about 2.75 percentage points, near the record low set in 2007. (…)

“There’s still a tremendous amount of cash that needs to be put to work,” said Dan Mead, head of Bank of America’s U.S. investment-grade syndicate desk.

Companies with investment-grade credit ratings sold $210 billion of bonds in the U.S. market this month, making it the busiest September on record, according to Dealogic. Sales of junk bonds have been roughly the same as last year, but they are often used to finance private-equity takeovers and there are signs that buyout activity is picking up. (…)

Some analysts see the greatest risk in private credit, a source of financing that barely existed a decade ago and is fast approaching $2 trillion. Much of the market consists of loans made directly by private fund managers such as Apollo Global Management and Blackstone, mostly to companies but also to individual consumers and real-estate investors.

An increasing number of companies that took out private credit loans, especially smaller enterprises, lack the cash to make interest payments on their debts. Instead they have started issuing the equivalent of IOUs to their creditors, replacing cash interest with “payment-in-kind,” or PIK, distributions.

About 11% of all loans by business-development companies, or BDCs—a growing category of private-credit funds—were receiving PIK interest income at the end of 2024, even before the threat of tariffs sowed uncertainty among U.S. companies, according to S&P Global Ratings.

More concerning, private credit defaults, which spiked during the pandemic but had started to subside since then, have been on the rise. Fitch’s privately monitored rating default rate hit 9.5% in July, before receding slightly.

• First Brands files for bankruptcy, threatening multibillion-dollar losses Collapse of US auto parts maker that borrowed billions in private markets has unnerved Wall Street

First Brands Group has filed for bankruptcy protection while disclosing more than $10bn in total liabilities, marking one of the most spectacular collapses in private debt markets in recent years.

The Ohio-based auto parts company filed for Chapter 11 protection in the Southern District of Texas late on Sunday, formalising the abrupt unravelling of a business that has borrowed billions of dollars in private markets and raised concerns over riskier lending on Wall Street. 

In its bankruptcy petition First Brands, which is owned by Malaysian-born businessman Patrick James, did not disclose specific liabilities but estimated they were in a category between $10bn and $50bn, while it put its assets at $1bn to $10bn.

Full details of its finances could take time to emerge given the chaotic nature of its descent into bankruptcy, which was fuelled by concerns over its use of off-balance sheet finance.

First Brands previously told lenders it had $5.9bn of long-term debt in March, against nearly $1bn of cash, but many creditors now fear there are billions of dollars more in opaque financing linked to its invoices and inventory. (…)

More supply/demand imbalances:

With global and domestic investors steadily raising allocations to equities, it’s only logical stocks go higher as JPM analysis shows global net equity supply has been zero-to-negative in recent years… It’s ECON 101 — hold supply steady and raise demand = price goes up (ceteris paribus).

Source:  @dailychartbook

Wait, wait, says Goldman Sachs:

• Growing investor risk appetite has also been reflected in the US IPO market. There have been 46 IPOs greater than $25 million YTD, totaling $24 billion. This represents an 18% increase in the number of IPOs vs. the same period in 2024 and puts 2025 on pace for the strongest year since 2021 (261), although still well below the historical average volume of issuance. The average IPO this year has returned 30% on its first day of trading, on track for one of the strongest years on record.

• The value of announced US M&A is up 29% year/year, with transactions skewed towards large deals. The number of announced M&A transactions has grown by 8% year/year, with the count of 566 deals YTD close to the 15-year average.

• We expect IPO and M&A activity will increase in 2026 alongside accelerating US economic growth, improving CEO confidence, and a rising equity market. Our IPO Issuance Barometer stands at 139 today, ranking in the 88th percentile since 2002, and we forecast a 15% increase in the number of completed US M&A deals in 2026.

BTW:

@MauiBoyMacro

Meanwhile,

(…) some pockets of the equity market have recently demonstrated greater signs of investor exuberance. For example, Bitcoin-sensitive equities and quantum computing stocks have risen by more than 40% and 60%, respectively, since the start of August. Similarly, a basket of liquid recent IPOs and a basket of stocks most popular among retail traders are each up 14%.

Taiwan Must Help US to Make Half its Chips, Commerce Chief Says

Washington is demanding Taiwan move investment and chip production to the US so half of American demand is manufactured locally, outlining a radical shift for the global semiconductor industry.

The US has held discussions about that with Taipei to reduce the risks of over-reliance, Commerce Secretary Howard Lutnick said in an interview with NewsNation. It was the only way to effectively counter Beijing’s threats to invade a self-ruled island it views as its own, Lutnick argued.

“That’s been the conversation we had with Taiwan, that you have to understand it’s vital for you to have us produce 50%,” he said. The US aims to get to “maybe 50% market share of producing the chip and the wafers — the semiconductors — we need for American consumption. That’s our objective,” Lutnick said during the interview.

US officials have for years warned about an over-dependence on Taiwan Semiconductor Manufacturing Co. and its giant ecosystem of suppliers, which together make and supply the vast majority of the world’s most advanced chips. (…)

But shifting capacity en masse will require not just enormous capital but also the large-scale migration of scores of suppliers and partners that together comprise TSMC’s production chain. (…)

• Xi Pushes Trump to Oppose Taiwan Independence in Major Shift

Chinese President Xi Jinping is renewing a push for the US to change a decades-old phrase describing its stance on Taiwan independence, a concession that would be a major diplomatic win for Beijing.

China has asked the Trump administration to officially declare that it “opposes” Taiwan independence, according to a person familiar with the matter, who asked not to be identified discussing private information.

The suggested wording is stronger than the Biden administration’s previous statement that US officials “do not support” the self-ruled island seeking formal independence, and would add to China’s campaign to isolate Taiwan on the world stage. The Wall Street Journal first reported the request. (…)

Any change in wording will fan concerns that Washington’s position on the self-ruled democracy, which Beijing considers a part of its territory, is becoming a trade war bargaining chip. In an abrupt policy reversal, Trump already put on the negotiating table some tech curbs imposed on China over national security concerns. (…)

The discussions come as President Donald Trump and Xi prepare for an expected meeting at an upcoming summit in South Korea, where they’ll continue to hash out the terms of a broader deal. As those negotiations drag on, Washington still hasn’t signed a trade deal with global chip hub Taiwan, despite at least four rounds of negotiations. (…)

Since President Richard Nixon broke formal ties with Taipei to establish relations with Beijing in the 1970s, the US has adopted a “one-China policy” that leaves Taiwan’s sovereignty undetermined. For decades, Washington has adopted “strategic ambiguity” over whether US forces would defend Taiwan against a Chinese attack. (…)

Unless and until its dependance on Taiwanese chips declines, the US cannot let China “own” Taiwan.

The world’s most innovative countries China joins the top ten

The World Intellectual Property Office (WIPO) uses 78 indicators to assemble its Global Innovation Index. They cover inputs (such as spending on research and development) and outputs (such as patents and high-tech exports). The index also tries to capture the strength of a country’s institutions, the sophistication of its markets and its progress in adopting technology, not just inventing it. Most of the data was collected in 2024, before President Donald Trump started his assault on science in America.

Many of WIPO’s indicators control for the size of a country’s economy and population. Spending on research and development, for example, is expressed not in raw dollar terms but as a percentage of GDP. The number of researchers is calculated per million members of the population. The top-ranked country this year, as it was last year, is tiny Switzerland. Sweden comes second and America third.

China’s entry into the top ten is all the more remarkable given its status as a middle-income economy. Countries with a similar GDP per person would be expected to rank in the 50s or 60s. Other countries that have outperformed their income levels include India, South Korea, Vietnam and Britain.

China also seems to be getting a satisfying amount of bang for its innovation buck. Its scores for outputs (patents, trademarks, exports and the like) are better than expected given its level of inputs (education, research spending and so on). This defies the conventional view that Chinese innovation is force-fed, reliant on huge amounts of money and manpower. The country was once described as a “fat tech dragon” that ingested vast amounts of resources while producing meagre creative sparks. The dragon now seems to be in better shape.

Revisions Unveil a More Resilient Economy than First Reported

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

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

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

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

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

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

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

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

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

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

Ed Yardeni:

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

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

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

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

Apollo’s Torsten Slok:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Axios has more on KMX:

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

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

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

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

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

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

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

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

China Tightens EV Export Rules With Permits Required From 2026

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

• Trump Says Tariff Revenue Will Fund Relief for US Farmers

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

• David Einhorn Sounds Warning on the AI Spending Splurge

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

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

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

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

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

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

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

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

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

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

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

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