US Consumers Remain Resilient

Rebound in Durable Goods Lifts Consumer Spending

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

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

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

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

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

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

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

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

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

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

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

Powell, justifying his increased dovishness:

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

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

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

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

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

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

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

FYI:

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

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

Source:  Daily Chartbook

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

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

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

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

(MacroMicro)

 

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

Gold to Oil Ratio

(Macrotrends)

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

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

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

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

MANUFACTURING PMIs

Eurozone factory output growth at 41-month high in August

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

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

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

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

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

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

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

China: Manufacturing sector conditions improve at quickestpace in five months

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Japan: Operating conditions deteriorate slightly in August

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

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

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

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

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

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

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

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

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

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

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

Canada: Second-quarter GDP hit hard by trade conflict

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

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

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

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

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

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

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

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

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

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

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

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

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

EARNINGS WATCH

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

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

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

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

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

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

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

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

 

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

Factset

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

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

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

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

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

Presumably not in USD…

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

How the Rule of Law Hits Wall Street:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Paul Simon

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

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

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

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

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

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

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

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

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

Central U.S. Manufacturing Maintains Expansion, But Prices Keep Rising Too

The Federal Reserve Bank of Kansas City said Thursday that its Tenth District manufacturing survey’s composite index was steady at 1.0 this month, maintaining the same level as July, when for the first time in three years the index pointed to expansion rather than contraction in the area’s manufacturing. (…)

Demand continued to recover, with production moving out of contraction territory, the index showed. (…)

With activity continuing to increases, price pressures also heated up. The index showed rises in both the prices manufacturers pay for raw materials, and the prices they receive for finished goods. (…)

The WSJ paints it rosier than it actually is. From the KC Fed data:

• Volume of new orders have been falling all year, faster in the last 2 months.
• Same for backlogs.
• Employment and the work week weakened measurably in the last 2 months.

Ed Yardeni:

The regional business surveys conducted by five of the 12 Federal Reserve district banks showed that inflationary pressures are building. The average of the prices-paid indexes jumped in August to 56.0, the highest reading since October 2022. The average of the prices-received indexes is lower at 24.5, suggesting that many companies are absorbing the increasing costs of tariffs and/or offsetting them with productivity gains. More companies may start to pass their costs on to consumers in the coming months.

Ed is also wondering “Is The Fed About To Stimulate A Hot Economy?”

Perhaps.

My August 22 post was titled Growthflation! following S&P Global’s flash US PMI:

S&P Global’s flash PMI rose to an eight-month high from 55.1 in July to 55.4 in August. The latest two months seeing the strongest back-to-back expansions since the spring of 2022. The last two months saw the the strongest back-to-back expansions in services since the spring of 2022. Employment rose for a sixth successive month, with the pace of job creation hitting the highest since January (and one of the strongest rates seen for over three years). Service providers took on staff at the fastest pace for seven months while factory job gains reached the highest since March 2022.”

Most large past divergences between S&P Global and the Employment ISM surveys ended up in favor of S&P Global. If this one is no exception:

• The ISM releases on September 2 (manufacturing) and 4 (services) could be surprising to many. If S&P Global is right, the US economy is actually quite strong and employment growth has strengthened in August.
• The FOMC would be wise to stay put a while longer, particularly since both surveys agree on accelerating inflation, fueled not only by tariffs but by strong underlying demand and limited supply.

This is supported by very strong real world data from corporate America in Q2: S&P 500 earnings are up 12.9% (14.8% ex-Energy), largely beating the July 1 forecast of +5.8%. Revenues are up 6.3% (7.4% ex-E) vs +3.7% expected. Corporate guidance remains solid.

Walmart’s US comps rose 4.6% in the quarter ended August 1, +3.6% in volume. The company raised its full-year sales guidance from +3-4% to +3.75-4.75%, a sign that back-to-school sales are solid.

• The Citigroup Economic Surprise Index jumped today to 26.8.

Higher Prices Are Coming for Household Staples Companies from Hormel to Ace Hardware forecast prices rising as the costs of Trump’s tariffs are passed on to consumers

Companies including Hormel Foods, J.M. Smucker and Ace Hardware said this week they would raise prices for reasons ranging from higher meat costs to tariffs. Large retailers like Walmart, Target and Best Buy said some tariff-related price increases are already in place. More are on the way.

“Some vendors are clearly communicating cost increases. Some are adjusting promotions. Some are planning to potentially increase prices with new product introductions, which always happens,” Best Buy Chief Executive Corie Barry said on an analyst call Thursday. She said price increases are much lower than the overall tariff rate. (…)

So far, tariff-related price increases have been muted, Walmart CEO Doug McMillon said last week. “But as we replenish inventory at post-tariff price levels, we’ve continued to see our costs increase each week, which we expect will continue into the third and fourth quarters.”

McMillon said price increases have led middle- and lower-income shoppers to pull back on some purchases. (…)

With tariffs driving up its purchasing costs, Ace said it plans to pass the increases through to its stores, which in turn will pass them along to consumers.

Food giant J.M. Smucker, which makes Folgers and Jif peanut butter, said prices will continue to go up for its coffee products as a result of the Trump administration’s 50% tariff on certain imports from Brazil, one of the world’s largest coffee producers. Smucker raised prices for its coffee in May and said it would raise them again this month.

Up to this point, many U.S. companies have either sold through existing inventory purchased when tariff rates were lower, absorbed the tariffs or negotiated with suppliers to share the burden. Other tariff-related costs haven’t arrived until now. (…)

Hormel Foods said Thursday that rising costs for beef, pork and nuts eroded its profit for the most recent quarter. As a result, the maker of Spam, Jennie-O turkey and Planters nuts began raising prices during the summer and plans to continue increases on some products. (…)

Tyson Foods, the largest American meat supplier by sales, said its average selling price for beef, chicken, pork and precooked products was up about 4% in the three months ended June 28 from a year earlier. Restaurant chains including Texas Roadhouse and Portillo’s have said they are hiking menu prices because of pricier beef. (…)

Retailers including Dick’s Sporting Goods, Victoria’s Secret, Dollar General and Williams-Sonoma reported higher quarterly sales in recent weeks, saying that while they and their suppliers have implemented some tariff-related price increases, that hasn’t slowed consumers’ purchases.

Dick’s Sporting Goods said shoppers are gravitating to new products and premium brands. “We have not seen a consumer having any issue with the price increases, the small level of price increases that have gone in,” said CEO Lauren Hobart.

At home-goods retailer Williams-Sonoma, which owns brands including West Elm and Pottery Barn, executives said higher prices and fewer discounts helped boost its profit in the most recent quarter. Apparel retailer Victoria’s Secret also said it continued to pull back on discounts, in part to offset the cost of tariffs. (…)

Dollar General CEO Todd Vasos said climbing consumer prices elsewhere could benefit his chain. While the company’s core clientele of low-income shoppers has increased spending at the chain, higher-income shoppers are trading down to Dollar General as they look for deals.

All are “seeking value at this point,” he said Thursday.

Trump Leans on National Security to Justify Next Wave of Tariffs Expanded steel and aluminum tariffs are just the start; new levies seen as likely for semiconductors, heavy trucks, commercial aircraft and more

(…) s on steel and aluminum were expanded this month, covering more than 400 new product lines with 50% levies and increasing compliance costs for companies. Those charges will likely be broadened further, along with expansions of existing tariffs on copper and automotive parts.

New levies on sectors like semiconductors, heavy trucks, pharmaceuticals and ingredients, processed critical minerals, and commercial aircraft and parts, among others, are also likely to be unveiled in coming months. (…)

Trump still holds near-unilateral authority over how national security tariffs are set or altered. That gives the administration an insurance policy if its reciprocal tariffs are struck down in court, people with knowledge of the administration’s plans say. (…)

At the same time, Trump’s team is considering ways to provide relief from some of those tariffs for a handful of large companies like U.S. automakers and tech firms, the people familiar with the plans say.

U.S. automakers have argued that despite 15% tariffs on Japan and Korea, it is still profitable to produce cars in those countries and ship them to the U.S.—in part because of higher input prices in the U.S. due to Trump’s steel, aluminum and parts tariffs.

Options the administration is considering for relief include expanding existing tariff rebates for automotive assemblers like Ford, Stellantis and General Motors, or applying quotas that allow a certain number of parts to enter the U.S. duty-free, according to people with knowledge of policy discussions. Trump has also floated exemptions from certain tariffs to large tech firms with U.S. operations, or giving some companies with U.S. operations more time before tariffs kick in. (…)

The additional items, announced Aug. 15, represent a major expansion of the national security tariffs on the steel and aluminum in finished goods that Trump imposed in March. Construction and farm equipment, factory robots, metal-cutting machinery, auto parts and other complex components are among the 400 items now subject to 50% tariffs on the metal contained in them.

The latest tranche of products brings the total value of imported finished products subject to U.S. metal tariffs to more $300 billion, according to Jason Miller, professor of supply chain management at Michigan State University.

“They’re just so sweeping in terms of their coverage,” Miller said. “We just keep picking up more and more. You’re now penalized for importing parts with a high percentage of steel and aluminum.” (…)

The administration plans to allow companies to petition for additional products to be covered by tariffs three times a year, with the next round opening in September, and another in January of next year. Additionally, the Commerce Department is considering inclusions for auto parts tariffs that could be unveiled in mid-September—one of four inclusion rounds planned each year—and the agency is also expected to open an inclusion process for copper tariffs by late October. (…)

Already, Trump has announced plans to expand the lumber tariffs to imported furniture products, which would significantly expand the scope of the levies to a number of everyday consumer products.

Trump rolled out the duties on metal derivative products after steel and aluminum producers complained that companies were buying finished products with foreign metal to avoid buying American-made products with domestic metal. (…)

Ken Fedor, a vice president for sales in the U.S. for transformer manufacturer SGB-SMIT Group in the Netherlands, said the U.S. doesn’t produce enough electrical steel or transformers to accommodate the surging transformer demand from data-center operators and utility companies. Expanding production of large transformers in the U.S. will take years, he said.

“You just can’t ramp it up. It’s a highly skilled process. Everything is customized,” he said.

He expects the tariff to increase the cost of the large imported transformers that SGB-SMIT builds by as much as 30%. The company makes them in the Netherlands and sells them mostly to U.S. electric utility companies for use at power generating plants and electrical substations.

The new tariffs on the metal in robotics gear will make it more expensive for U.S. companies to automate factory processes by deploying robots. The robot market in the U.S. is now largely supplied with hardware from robotics companies in Japan, South Korea, China and Germany. Automation to reduce labor costs has been an incentive for companies thinking about bringing manufacturing to the U.S. from overseas.

“If the costs go up, it’s going to make it harder for companies to justify bringing more manufacturing back,” said Jeff Burnstein, president of the Michigan-based Association for Advancing Automation, a trade group for robotics. “Right now, the tariffs look like this is a negative for the robotics industry and manufacturing in general for the U.S.” (…)

Texas-based construction and mining equipment maker Caterpillar said Thursday its tariff expenses this year could reach $1.8 billion, up from the $1.5 billion forecast earlier this month. The company said it raised its expense outlook in response to the expansion of tariffs. (…)

The Trump administration currently lets the automakers receive a rebate on the tariffs they pay for auto parts. But companies have asked the Commerce Department to expand the program to allow them to be refunded for other tariff costs as well, according to people with knowledge of the discussions. (…)

Centralized economy run by civil servants. Good luck. History rhymes as Mark Twain said.

BTW:

Agco for years has been trying to boost its business in the U.S., where it has held the No. 3 spot in essentially a three-company farm-equipment market. But a wave of new tariffs means it will be harder to boost its standing there.

The Duluth, Ga., company doesn’t have enough U.S. sales to justify moving more production out of Europe, where it has most of its production and sales, Chief Financial Officer Damon Audia said. And the likely need to raise prices to offset tariff costs could further depress sluggish demand for farm equipment in the U.S., where the company is continuing to invest.

Meanwhile, in Europe, where much of its supply chain and sales are aligned, the company could see a boost by avoiding many tariff costs that its peers Deere & Co. and CNH Industrial face. (…)

“All of us are looking at these costs trying to figure out how to keep it low for the farmers,” he said. “But ultimately, these are things that we’re going to have to try to pass through in some capacity over time.”

The company might spread out price increases across its brands, for example charging more for planters and sprayers made in the U.S. so it wouldn’t have to raise prices as much on tractors from Germany, Audia said, adding no decision has been made. (…)

“If what we really want as a country is more U.S. manufacturing, then making it harder for people to do that seems counterproductive,” Volkmann said. (WSJ)

US Tariff Impact Tracker

Goldman Sachs plots high-frequency data: China exports less to the US but more overall.

 

The Richmond Fed polled businesses in August:

According to our August surveys, almost 30 percent of firms were not at all certain about their input costs for the remainder of the year. The uncertainty went beyond just those firms affected by tariffs: Sixteen percent of firms that reported not importing products subject to tariffs were not at all certain about their input costs for the remainder of the year.

Thirty percent of firms were only slightly certain about input costs. That means that well over half of firms are relatively uncertain about what they will be paying for inputs in 2025. This was especially prevalent among manufacturing firms, where 44 percent reported that they were not at all certain about input prices for the remainder of the year.

A vehicle parts manufacturing firm reported, “Over the past 20+ years, we have developed good relationships and a reliable, stable supply chain. The tariffs and the threat of tariffs have completely upended that … we will have to increase prices to our customers or make less margin or, most likely, both.”

On the other hand, there was much more certainty among respondent firms about how they will price their own products and services. Although most firms were uncertain about their costs, over 60 percent of responding businesses were very or somewhat certain of the prices they will charge their customers, with service sector firms (66 percent) more likely to report certainty than manufacturers (52 percent).

Nonetheless, there were service sector firms that reported ripple effects of trade policy changes. For example, one professional services respondent reported, “My firm supports businesses that import materials from other countries, so we are impacted by their ability to invest in professional services based on increased costs and supply issues related to tariffs.”

Some firms remain in “wait and see” mode as uncertainty around tariff policy and input prices persists. However, most impacted respondents have begun passing along tariff costs to their customers by raising prices.

Of the roughly half of firms that reported direct tariff impacts, nearly 60 percent of them have already increased their prices due to tariffs, and most of these firms plan to raise prices again.

In contrast, about 25 percent of firms reported that they have been impacted by tariffs and plan to raise prices but have not yet. For example, a South Carolina transportation manufacturer plans to pass on tariff costs but has not yet due to concerns about demand for their product. As they explained, “Tariff cost transfer to customers is creating the largest earnings uncertainty in our 2026 business plan.” Fourteen percent of respondents who reported being affected by tariffs were unsure about whether to adjust prices.

Regardless of whether they have increased prices already due to tariffs, most impacted firms intend to raise prices. However, amid trade policy changes, over half of firms that plan to increase prices are mostly or entirely uncertain about their prices through the end of the year, casting uncertainty on whether and when these price increases will manifest.

Almost one-quarter of respondents that are impacted by tariffs have not increased prices but plan to. Roughly 50 percent of these firms expect to increase prices before the end of the year. Another 29 percent expect to start passing through in 2026, and 21 percent are not sure when they will start passing through costs.

Another 45 percent of tariff-affected respondents have already increased prices and expect to increase prices further. Nearly 70 percent of these firms expect to raise prices by October, and few anticipate waiting until 2026. In other words, firms that have increased prices already expect to increase prices again sooner than those firms that have yet to increase prices.

Still, many firms continue to be unsure about the timing of their next price increases. A North Carolina transportation company reported that they have begun passing through tariff costs, but they are waiting until next year to increase prices further, noting that “We have found demand softening, which has led … to much more price competition. …”

Canada’s annual job growth barely above zero in June, payroll survey shows

(…) The number of factory jobs fell 8,400 on a month-over-month basis, as manufacturers scaled back operations in the face of U.S. President Donald Trump’s tariffs on imports from Canada. Based on the payroll data, manufacturing employment has fallen every month since December, wiping out 26,600 jobs since then.

Meanwhile, employment at retailers suffered the next largest decline, dropping by 8,100 positions between May and June. (…)

NBF adds:

In its July Monetary Policy Report, the Bank of Canada stated that several labour market indicators point to growing slack but added that this weakness was limited to sectors sensitive to trade. (…)

According to the survey, total employment fell by 33,000 in June, bringing the total decline since the beginning of the year to 47,000.

Limiting our analysis to the private sector reveals an even more pronounced decline so far in 2025, with 69,000 jobs lost, resulting in the lowest employment level in 28 months. Unsurprisingly given current trade situation, the manufacturing sector has declined by 25,000 jobs, and the two major provinces that depend most on this sector have shown significant declines (Ontario: -39,000; Quebec: -24,000).

However, the weakness is much more widespread at the sectoral level than the Central Bank seems to believe. As today’s Hot chart shows, only 36% of private sector industries have grown over the past six months (i.e. since the beginning of the year), which is unheard of outside of a recession.

While the Federal Reserve has begun to show unease with a weakening U.S. labour market—evident in its increasingly narrow breadth of job gains—the outright collapse in Canada should be an even greater cause for concern at the Bank of Canada.

Notice how low is the US diffusion index. Still declining.

Alibaba Creates AI Chip to Help China Fill Nvidia Void Chinese tech companies spark market exuberance by signaling they are catching up to U.S.

Chinese chip companies and artificial-intelligence developers are building up their arsenal of homegrown technology, backed by a government determined to win the AI race with the U.S.

The latest example: China’s biggest cloud-computing company, Alibaba has developed a new chip that is more versatile than its older chips.

Alibaba was long one of the biggest customers of American AI-chip leader Nvidia. Now it and other chip designers are filling the void left after Nvidia ran into regulatory barriers to selling its products in China.

Industry insiders say China remains far from being able to make chips that can rival the most advanced American products, which Washington bars China from importing. Chinese factories are hobbled by U.S. restrictions on access to cutting-edge chip-making technology.

Still, companies are coming up with substitutes for Nvidia’s H20 chip, the most powerful AI processor it is allowed to sell in China. (…)

In July, Shanghai-based MetaX rolled out a new chip that it said could serve as a replacement for the H20. The chip has bigger memory than the H20, boosting its power for some AI tasks, although it consumes more electricity. MetaX said Wednesday it was preparing for mass production of the chip.

Another would-be Nvidia rival, Beijing-based AI-chip designer Cambricon Technologies, had a breakout April-June quarter, posting revenue of $247 million on robust orders of its AI-chip Siyuan 590. (…)

Alibaba, founded by internet pioneer Jack Ma, is sometimes compared with Amazon.com because its biggest business is e-commerce, but it makes much of its money from the lower-profile business of cloud-computing services—running applications and storing data for customers on remote computers. Alibaba competes with Amazon Web Services, Microsoft and Google for cloud business, particularly in Asia.

Corporate customers are increasingly demanding AI services, and Alibaba Chief Executive Eddie Wu has said “AI plus cloud” is one of Alibaba’s two engines of growth alongside e-commerce. In February, Alibaba said it would invest at least $53 billion over the next three years in the area. It also has one of the world’s highest-rated AI models, called Qwen. (…)

Previous cloud-computing chips developed by Alibaba have mostly been designed for specific applications. The new chip, now in testing, is meant to serve a broader range of AI inference tasks, said people familiar with it.

The chip is manufactured by a Chinese company, they said, in contrast to an earlier Alibaba AI processor that was fabricated by Taiwan Semiconductor Manufacturing. Washington has blocked TSMC from manufacturing AI chips for China that use leading-edge technology.

One challenge for Alibaba and other local players relying on Chinese chip factories is getting enough supply. These factories, which use older foreign machines and less powerful homegrown equipment, have struggled to increase capacity.

MetaX, the Shanghai startup, is getting around the bottlenecks by using an earlier-generation technology to make its new chip, people familiar with the product said. MetaX combines two smaller chips to make up for the loss of performance. (…)

The flag-bearer for Beijing’s push is Huawei Technologies and its Ascend AI chips. Earlier this year, Huawei showed off a computing system that integrates 384 Ascend chips. Some analysts said the machine, although a power hog, was more powerful on some metrics than Nvidia’s top-of-the-line system containing 72 Blackwell chips.

By combining chips, “we can achieve comparable computing results to the most advanced standards,” and “there’s no need to worry about the chip problem,” Huawei founder Ren Zhengfei told the Communist Party’s main newspaper in June.

Even within China, Huawei’s privileged status is raising some hackles. Many engineers are accustomed to the software and tools that accompany Nvidia’s chips. Huawei, subject to U.S. sanctions, didn’t design its chips to work with the Nvidia platform, whereas Alibaba’s new chip will be compatible with it, meaning engineers can repurpose programs they wrote for Nvidia chips.

Private-sector cloud companies including Alibaba have refrained from bulk orders of Huawei’s chips, resisting official suggestions that they should help the national champion, because they consider Huawei a direct rival in cloud services, people close to the firms said.

China’s biggest weakness is training AI models, for which U.S. companies rely on the most powerful Nvidia products. Alibaba’s new chip is designed for inference, not training, people familiar with it said.

Chinese engineers have complained that homegrown chips including Huawei’s run into problems when training AI, such as overheating and breaking down in the middle of training runs. Huawei declined to comment.

DeepSeek, a Chinese startup with models challenging OpenAI’s, recently prompted a stock rally in China by suggesting in a cryptic comment on social media that its software innovations could combine with improved Chinese-made chips to train some AI models.

Kevin Xu, founder of AI-focused fund manager Interconnected Capital, wrote on a blog that such adaptations may allow Chinese AI developers to narrow the gap with the U.S. “sooner than most people think, credibly challenging Nvidia and the American AI stack both at home and abroad.”

Not just to “narrow the gap” …

Europe Car Sales Gain Most in 15 Months as Consumers Warm to EVs

Registrations climbed 5.9% last month from a year earlier — the steepest gain since April 2024 — to 1.09 million units, the European Automobile Manufacturers’ Association said Thursday.

Plug-in hybrids made the biggest jump in July of 52%, as buyers increasingly opt for models that combine electric driving with a backup combustion engine. Sales of fully electric vehicles rose by more than a third, the best result since January.

The data is a boost for the region’s beleaguered industry following a sharp drop in June. European automakers continue to face headwinds as US President Donald Trump’s tariffs disrupt supply chains and Chinese brands led by BYD Co. gain ground with affordable EVs. (…)

Tesla Inc. continued to suffer. Sales of the Elon Musk-led brand slumped 40% last month, giving it a market share of just 0.8%. Volkswagen, Ford Motor Co. and BMW had double-digit gains, while BYD’s deliveries more than tripled.

Renewables investors are pulling back from the U.S.

Trump 2.0’s reversal of federal support is starting to show up in hard financing data.

The first half of 2025 saw the “reallocation” of investment dollars away from the U.S. begin, the research firm BloombergNEF found. U.S. spending fell by $20.5 billion, or 36%, from the second half of 2024 in what the firm calls a response to the U.S. presidential election.
It was the steepest drop of any country.

“There was a rush to construct toward the end of last year as developers sought to lock in access to tax credits, and then a sharp drop in the first half of this year due to worsening policy conditions, particularly for wind, and growing tariff uncertainty,” the report states.

The European Union saw a big jump, which “supports the idea that developers and investors may be reallocating capital out of the U.S. and into Europe.”

The U.S., in the first half of 2025, wasn’t among the world’s top-five wind markets for the first time since 2016.

Worldwide investment was $386 billion in the first half of 2025, a tally that’s largely wind and solar, but also includes biofuels, geothermal and more. (…)

How recent events sway U.S. investment trends.

• The Interior Department has unveiled fresh constraints on wind and solar projects, while the Commerce Department could impose new tariffs on wind blades and components.
• And just last week, Interior demanded that Ørsted halt construction on a big, nearly complete wind project off Rhode Island.

FYI:

Around 90% of renewables cheaper than fossil fuels worldwide, IRENA says

The majority of newly commissioned renewable energy is more cost-effective for electricity generation than most fossil fuels worldwide, a report by the International Renewable Energy Agency (IRENA) showed on Tuesday. (…)

Solar photovoltaic (PV) was 41% cheaper on average than the lowest-cost fossil fuel alternatives, such as gas, while onshore wind projects were 53% cheaper.

The cost of battery energy storage systems has declined by 93% since 2010, the report added.

MAGA?

WHY NOT?

Trump Ally Floats Norway Tariffs Over Caterpillar Divestment

A Republican senator closely allied with US President Donald Trump suggested imposing additional tariffs on Norway in retaliation for a decision by the country’s sovereign wealth fund to divest its holdings of heavy-equipment maker Caterpillar Inc.

Senator Lindsey Graham, a South Carolina Republican, in a social media post Thursday also floated halting US visas for leaders of the sovereign wealth fund and other “organizations that attempt to punish American companies for geopolitical differences.”

Norway’s $2 trillion sovereign wealth fund removed Texas-based Caterpillar from its fund this week based on Israel’s use of its bulldozers to destroy Palestinian property in Gaza and the West Bank. The fund held about $2.1 billion worth of shares in the company as of June 30. (…)

Norges Bank Investment Management operates under a mandate set by the Norwegian parliament with ethical guidelines on issues ranging from land mines to climate change. It is advised by an external ethics council, which assesses the portfolio on an ongoing basis and recommends companies for exclusion or observation.

More than half of the fund’s investments were in US equities and bonds as of June 30.

Trump Suggests ABC And NBC Should Lose Broadcast Licenses Over Negative Coverage Of Him