CONSUMER WATCH

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

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

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

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

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

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

Indeed!

  Trump Widens Metal Tariffs to Target Baby Gear and Motorcycles

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

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

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

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

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

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

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

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

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

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

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

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

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

Trump Tariffs Seen Fostering New China-Global South Trade Order

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

John Authers:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Retail Sales Good Not Great in July

There are a few things that take some of the shine off the headline reading, but overall the latest data are consistent with a consumer that keeps spending. A big part of the strength in July spending can be traced to auto sales, which rose 1.6% during the month. In looking through autos, sales were up a more modest 0.3%.

Higher prices are also at play given retail sales are reported nominally, or not adjusted for inflation. Overall goods prices were flat in August, but higher prices for heavily-imported items like household furnishings and recreational goods lifted core goods prices and make sales at some retailers look stronger than underlying volumes likely were last month.

Specifically, we take the larger 1.4% gain in sales at furniture stores and 0.8% gain in sales at sporting goods stores with a grain of salt expecting some of this is simply reflecting higher prices paid for these products during the month. Building material stores may have been even weaker to the extent prices moved up during the month. This works the other way as well—gas sales were likely stronger than implied by the 0.7% gain, given a drop in prices at the pump last month.

In cutting through some of the noise, control group sales which exclude autos, gas, building materials and restaurant sales rose a trend-line 0.5% in July and the 0.5% gain in June was revised up to 0.8% suggesting a decent start to Q3 goods spending.

Source: U.S. Department of Commerce and Wells Fargo Economics

Some of the control group sales strength stems from the 0.8% gain at nonstore retailers, or online sales. July captures Amazon’s Prime-day sales event, which was four rather than the traditional two-days this year. It’s not just Amazon either as other big box retailers have also grown accustomed to running big sales alongside the prime event leading to a spurt of activity during the month. The Census Bureau accounts for this by making seasonal adjustments to the data in an attempt to smooth through annual patterns in sales. (…)

We’ve highlighted the weakness in broad discretionary services, and the 0.4% decline in restaurant sales isn’t exactly a good sign for July services spending, though this series has been volatile month-to-month.

Something less appreciated is the fact that discretionary goods purchases have slipped in each of the three months of Q2 after a tariff-induced pop in March.

The recent downward revisions to job growth help make some more sense of the recent weakness in spending as households have grown more unsure about their job prospects and continue to be worried about tariff-induced price pressure. Ultimately, higher consumer prices could lead to a firmer retail trend in coming months, but we remain cautious on the trajectory of underlying sales volume headed into the second half of the year.

Maybe not great, but very good rather than only good. Retail inflation is picking up: +0.8% YoY, highest since September 2023 but Americans keep spending merrily thanks to payroll growth in the 4.5-5.0% range.

Growth in payrolls averaged 4.3% annualized in the last 3 months, up from 3.8% in the previous 3 months. But the composition has changed from 25% coming from employment growth to only 6% in the last 3 months.

Weird thought: employment growth stalls but consumers keep spending from steady wages and savings while inflation slowly eats up their purchasing power. Should the Fed stimulate now, not really knowing how things will shape up?

INFLATION WATCH

Friday we also got import prices for July.

• Prices for core imports advanced 0.3% MoM in July, following a decrease of 0.1% in June.
• Import prices for nonfuel industrial supplies and materials increased 1.0% in July, the largest monthly advance since a 1.2-percent rise in February. Higher prices for finished nonmetals (boxes, belting, glass, etc.) and major nonferrous metals-crude more than offset lower prices for nonmonetary gold.
• Prices for the major finished goods import categories were mostly up in July. Import prices for consumer goods increased 0.4%, the largest 1-month rise since February 2024. Higher prices for apparel, footwear, and household goods contributed to the July advance.
• The price index for automotive vehicles decreased 0.2%, the largest monthly decline since the index dropped 0.2% in November 2024. The July decrease was led by lower prices for passenger cars, new and used.
• Import capital goods prices increased 0.1% in July.

By country of origin (July MoM):

• Canada: 0.6%
• EU: 1.0%
• UK: 1.5%
• Mexico: 0.8%
• Japan: 0.5%
• China: 0.2%
• ASEAN: 0.3%

FYI: BLS does not include tariffs in estimates derived for the U.S. Import and Export Price Indexes.

Fed’s Bostic Gets Earful on Tariff Costs, Consumer Pain on Tour

Raphael Bostic had two key takeaways from a recent tour through a stretch of the southeast US overseen by the Federal Reserve Bank of Atlanta — consumers are growing more stressed, and tariff costs are real.

In conversations with bankers, educators and business owners based in northern Alabama and Mississippi, Bostic, who is president of the Atlanta Fed, also heard about the burden of higher borrowing costs squeezing businesses’ profit margins and making it harder for families to buy a home. Employer struggles to find and retain workers was another refrain. (…)

“Today, I think my strategic approach would be ‘move and wait,’” Bostic said during an interview Thursday in Red Bay, Alabama. “It might be that it will take some time for the economy to evolve after a move that we do, in ways that make clear sort of what the next step would need to be.”

(…) Bostic did hear repeatedly about the strain businesses and households are facing from elevated costs and higher interest rates, and the ways tariffs are adding to those burdens. (…)

Stories like that reminded Bostic that the new import duties are working their way through the economy. “Tariff costs are actually real costs,” he said. While many firms have absorbed some of the shock to shield consumers, “they don’t think they can do that forever,” said Bostic. “And time is getting short.” (…)

“We’re seeing the consumer stressed,” said John Ramage, executive vice president of Troy Bank & Trust, which has seen some people who were previously current on their loans now making payments 15 days late — and those who were 15 days late now falling one month behind.

“Prices went up and their wages didn’t,” Ramage explained. (…)

Bostic said he still doesn’t have a clear view on whether the price effects from tariffs are more likely to be a passing, or persistent, phenomenon. But he’s watching the policies and data to see where the economy is going to settle, and is prepared to adjust policy accordingly.

“I see the world today as having a lot of different possible outcomes,” Bostic said. “I don’t think I have enough confidence about the probabilities assigned to the specific outcomes to feel like we can move definitively in one direction.”

European Trade Takes Fresh Tariff Hit as U.S. Exports Slump Exports to the U.S. continue to slow sharply, declining by 10% on year in June

Exports to the U.S. from the 27 nations that make up the European Union dropped 10% on year in June to hit their lowest level since the end of 2023, at a little over 40 billion euros ($46.8 billion,) according to figures released Monday by statistics agency Eurostat. The bloc’s overall trade surplus shrank to just 1.8 billion euros, down from 12.7 billion euros a month earlier.

June’s fall comes after EU exports to its largest external trading partner decreased sharply in April, having surged to a record high of nearly 72 billion euros in March, when American importers stockpiled goods ahead of the Trump administration’s impending tariff announcements. At the end of July, Brussels and Washington reached an agreement that will see a 15% baseline tariff placed on EU imports to the U.S. Elements of that deal remain under negotiation; a joint statement detailing the agreement should be achieved “soon,” EU spokesperson Olof Gill said last week. (…)

Compared with a month earlier, June’s shrinking surplus was driven in particular by weaker exports of chemicals, an important export sector for many European economies. Germany, long Europe’s industrial powerhouse and one of the world’s top exporting nations, has seen exports to America slide in recent months, weighing on output at its factories and limiting growth in the wider economy. A strong euro is also paring demand for European goods. (…)

European exports to China, another important market, meanwhile also fell sharply on year, highlighting the broader negative effects of the chillier global trade backdrop. (…)

Narendra Modi vows ‘self-reliant India’ in wake of Donald Trump’s 50% tariff Prime minister unveils plans for tax and regulatory reforms to benefit business

Indian Prime Minister Narendra Modi has vowed to build a “self-reliant India” and announced tax and regulatory reforms to benefit businesspeople and the middle class in his first major speech since the US imposed 50 per cent tariffs on the country.

Modi did not make direct reference to the falling out with the US, but his speech on Friday at Delhi’s Red Fort to mark the country’s 78th anniversary of independence from Britain was heavy on nationalist rhetoric as he pledged to insulate the economy against its reliance on imports ranging from microchips to engines for fighter jets.

“I want to tell our citizens, our youth, and everyone who understands the power of technology, that by the end of this year, ‘Made in India’ semiconductor chips will be available in the market,” said Modi, who was clad in an orange turban and a scarf in the national colours of orange, white and green. (…)

The rift between India and the US, its largest trading partner, has plunged their expanding strategic partnership into its worst crisis in decades, and has stunned many Indians, rekindling distrust of the US and the west in a country that has a long-standing friendship with Russia. (…)

Modi on Friday announced the creation of a dedicated “task force for next generation reforms” to be charged with cutting compliance costs for companies and entrepreneurs, reducing the scope for arbitrary legal actions, and streamlining laws to improve the ease of doing business.

China’s Top Rival to Tesla Bot Headlines Robot Games in Beijing Unitree machines raced and boxed in latest showcase of Chinese robotics

Unitree Robotics brought the spotlight-grabbing machines at Beijing’s set piece robots competition on Friday, burnishing its reputation as a national champion for China’s ambitions in developing AI and humanoids.

The Hangzhou-based company’s H1 robot won gold in a 1,500-meter humanoid race with a listed time of 6 minutes and 35 seconds, beating the average mile time on Strava by close to four minutes. Another Unitree machine also made it to the podium in a race that highlighted day one of the World Humanoid Robot Games.

The three-day event hosted in the Chinese capital is the latest showcase for the nation’s challengers to Tesla Inc. and other US companies developing products in the emerging field of advanced robotics. While Tesla’s Optimus humanoid is still largely just a promise in development, Unitree’s alternatives showed off various athletic feats, adding to Chinese steps forward that included a half-marathon race in April. (…)

In a boxing ring set up at the center of the National Speed Skating Oval arena, contestants from local universities pit Unitree’s G1 models against each other. The robots, distinguishable by colored headbands and gloves, wowed the audience with their kicks and swings. (…)

Hundreds more robots also joined the event on Friday. Beyond the main stage, there were demonstrations like a machine arm playing table tennis and robots on wheels shooting hoops. (…)

Meanwhile, China’s housing problem does not get any better:

New property sales, starts, and completions dropped 8%, 15.4% and 29.2%, respectively, from year-ago levels. The decline in property FAI widened from 12.9% yoy in June to 17.1% yoy in July.

Although the NBS 70-city new home price index only edged down 2.0% mom annualized after seasonal adjustments, similar to June, the Centaline 6-city existing home price index dropped more meaningfully, suggesting continued sales by holders of multiple apartments in large cities.

Recent relaxation of home purchase restrictions in the outskirts of Beijing and potential SOE purchases of unsold homes (totaling RMB 300bn) reported in the media are unlikely to stop the decline in home prices. (GS)

Source: NBS, Centaline, Beike, Zhuge, Wind, Goldman Sachs Global Investment Research

EARNINGS WATCH

Goldman Sachs:

With the 2Q 2025 earnings season nearly complete, the quarter has been marked by one of the greatest frequency of earnings beats on record. 92% of S&P 500 companies representing 84% of market cap have reported. Of those companies, 60% have beaten consensus EPS forecasts by more than a standard deviation of analyst estimates, the highest rate in our 25 years of data history outside of 2009 and the COVID reopening.

Earnings per share for the aggregate S&P 500 grew by 11% year/year in 2Q 2025, 7 pp higher than what consensus had expected. Coming into the earnings season, analysts estimated a 4% year/year EPS growth rate, which would have represented an 8 pp deceleration relative to the 12% year/year growth reported for 1Q. As we discussed in our earnings preview, analysts had slashed earnings estimates as the equity market tumbled in March and April, setting the low bar that companies easily cleared this reporting season.

The strength of 2Q earnings results was broad based. Not only did a majority of companies beat expectations, but the median stock in the S&P 500 reported EPS growth of 8% year/year in 2Q, a slight acceleration from the 7% growth rate in 1Q. EPS growth was strongest among Info Tech and Comm Services stocks, many of which are exposed to the AI investment cycle, as well as pockets of cyclicals such as Financials and Industrials. Materials, Consumer Staples, and Energy were the only sectors where the median stock posted negative earnings growth this quarter.

While backward-looking 2Q results cleared a low bar set by cautious estimates, forward-looking guidance from corporate managements was also stronger than average. 58% of companies this quarter raised their forward guidance for full-year EPS, twice the 29% rate during the 1Q season. Many companies explicitly communicated that the projected earnings headwind from tariffs would be smaller than previous management estimates (e.g., EMR, KMB, PNR, SOLV), in large part because tariff rates had declined relative to levels announced at the start of the last reporting season.

Mirroring the improvement in guidance, analyst estimate revisions for the second half of 2025 have been unusually positive this quarter. During an average reporting season, analysts lower their forecasts for subsequent quarters as companies report, setting the stage for eventual beats. This season, estimates for aggregate S&P 500 earnings in 3Q and 4Q 2025 have actually moved slightly higher.

However, as a result of the large negative revisions earlier this year and the large 2Q beat, analyst estimates show a sharp deceleration in EPS growth from 11% this quarter to 7% in the second half of this year.

Revisions to 2026 earnings estimates have also been extraordinarily robust. Earnings revisions breadth, which measures the relative frequency of upward vs. downward revisions to year ahead analyst estimates, has risen during the last several weeks to the highest level since mid-2021.

We expect the trajectory of earnings estimates to weaken going forward, but not enough to be a negative catalyst for equity prices. We forecast +7% S&P 500 EPS growth in 2025 and 2026, roughly in line with the consensus for 2025 but below both the top-down and bottom-up consensus in 2026.

However, downward revisions to consensus estimates are the usual pattern. Since 1985, consensus EPS growth estimates have typically been trimmed by about 4% each year, a pattern that, if continued, would reduce the current bottom-up consensus 2026 EPS estimate from $304 close to our current estimate of $280 by the time 2026 earnings are fully reported in early 2027.

One reason for the recent positive surprises and revisions is that margins have remained more resilient than many feared in the face of tariffs. Corporations have continued to message their ability to maintain their margins by negotiating with suppliers, adjusting supply chains, passing through prices to consumers, and cutting other costs. In 2Q 2025, margins for the aggregate S&P 500 declined sequentially by roughly 0.1 pp, while the median stock in the index saw its margins rise by 0.4 pp.

Looking ahead, analysts expect aggregate S&P 500 margins to remain flat in 2H 2025, supported by the strong estimates for the largest companies in the index. In contrast, margins for the median S&P 500 stock are estimated to decline slightly in the second half of the year. (…)

Analysts currently expect 2026 margins to expand dramatically, driving an acceleration in EPS growth next year. While companies remain confident in their ability to mitigate the cost pressures imposed by tariffs, and arithmetically the superior margins of the largest technology companies should continue to boost margins for the aggregate index, we see little reason to expect a large increase in profit margins next year.

Margin estimates for companies outside of the S&P 500 look even more vulnerable. Mid-caps and small-caps generally have lower margins than large-caps, but analyst expect those margins to increase in 2H 2025 and 2026.

Dollar weakness has provided a tailwind to large-cap revenues. On a constant currency basis, both real and nominal sales growth for the S&P 500 decelerated in 2Q 2025. Going forward, our economists’ forecasts suggest further downside risk to real demand, but a coincident increase in prices should help support nominal revenue growth. Sales growth appears more at risk for mid- and small-cap companies, which enjoy less of a tailwind from dollar weakness and have already experienced negative real sales growth in 1H 2025. (…)

The Magnificent 7 continued to grow earnings at more than 3x the rate of the rest of the S&P 500. Using consensus estimates for NVDA, which is scheduled to report on August 27, the Magnificent 7 grew EPS by 26% year/year in 2Q, compared with 7% for the remaining 493 stocks in the index. The 19 pp gap compared with a consensus estimate of 14 pp at the beginning of the earnings season.

Going forward, consensus expects a deceleration in Magnificent 7 EPS growth and an acceleration in S&P 493 EPS growth, with projected EPS growth converging by the end of 2026.

However, recent EPS revisions have again pushed the projected growth convergence between the largest technology stocks and the rest of the market further into the future. One year ago, analysts estimated that the 2025 EPS growth gap between the two groups would equal 3 pp, but the gap is currently tracking at 13 pp. Since the start of 2025, analysts have lifted 2026 EPS estimates for the Magnificent 7 by +1% while cutting estimates for the S&P 493 by -4%.

Capex estimates for the Magnificent 7 have been lifted even more sharply than earnings estimates. Since the start of the quarter, analysts have increased their estimates for Magnificent 7 capex by 12% for 2025 and 29% for 2026. The Magnificent 7 are now expected to spend $385 billion on capex this year and $461 billion in 2026.

(…) the median stock in the S&P 500 increased its growth investment spending by 4% year/year during 2Q. On an aggregate basis, the S&P 500 grew capex spending by 24% year/year and lifted R&D by 10%, but decreased buybacks by 1%, while buybacks for the median stock were flat.

US Corporate Bond Spreads Sink to 27-Year Low as ‘FOMO’ Sets In

The extra yield that investors receive for owning investment-grade corporate bonds instead of Treasuries shrunk to just 73 basis points Friday, the lowest since 1998, according to Bloomberg index data.

The drop indicates that the bonds have grown unusually pricey as investors move to lock in current interest-rates despite the risks to businesses posed by the slowing economy and US trade war. Bond traders are betting that the Fed will follow suit, cutting rates as soon as next month after recent economic releases showed inflation was largely in line with expectations and the labor market weakened. (…)

Callum Thomas:

• Investment Manager Sentiment:  Similar thing in the Investment Manager survey; risk appetite and near-term market outlook have dropped back to quite pessimistic levels. The key causes for concern are valuations, politics, and macro. The only bright spot in the survey is earnings.

Source:  Investment Manager Index

• The Real Earnings Yield:  …is Real Low.

Adjusting the CAPE earnings yield for market based inflation expectations shows the real earnings yield at levels where we have seen the emergence of major market volatility in the past (e.g. 1997 prior to the Asian financial crisis, 2000 at the peak of the dot com bubble, 2021 stimulus bubble peak). Different this time?

Source:  Topdown Charts

FYI: the chart below shows that the situation today is surprisingly similar to the IT bubble in the 1990s. (Apollo)

Sources: Bloomberg, Apollo Chief Economist

Worth your time:

Barron’s Senior Writer Tae Kim and Andrew Freedman, communications and software analyst at Hedgeye, unpack the implications for companies such as Alphabet, Meta, Nvidia, and Figma, in a conversation with Barron’s Senior Managing Editor Lauren Rublin.

https://www.barrons.com/podcasts/barrons-live/what-next-for-tech-stocks/FA0C6EBA-5FCC-4AD6-B885-00055583A5BD

BTW: The US also has a food trade deficit:

After five decades of large agricultural trade surpluses, “the U.S. agricultural trade deficit hit a record high in the first half of 2025… [continuing] a historic reversal for the US agricultural sector.” (Bloomberg) (via Bruce Mehlman)

Also from Bruce Mehlman:

• While “it’s the economy, stupid” for Presidential elections, for midterm elections “it’s the President’s approval, stupid.” Midterm outcomes correlate far more closely with Presidential approval than any economic data. (Mehlman Consulting analysis).

The Economist:

Since his inauguration, YouGov has asked respondents whether they approve or disapprove of the job Mr Trump is doing as president. Subtracting the share who disapprove from the share who approve gives us the president’s “net approval”.

Most presidents since polling began have started their terms with positive net approval. Both Mr Trump’s terms began with mixed reviews, and he spent almost his entire first term with a negative score. His second may be following a similar trajectory. It took less than two months for his approval rating to fall below zero, where it has remained ever since. His current net approval rating is -12.

Mr Trump was re-elected on a wave of economic pessimism, telling voters that “incomes will skyrocket, inflation will vanish completely, jobs will come roaring back and the middle class will prosper like never, ever before” during his second term. So far they have been disappointed. Ratings of his handling of the economy and inflation were net positive shortly after his inauguration. They have since fallen to strongly negative in the wake of his declarations of trade war and the ensuing response of investors. YouGov’s data also suggest Americans now disapprove of his handling of immigration, another issue central to his re-election.

Mr Trump’s voters still overwhelmingly approve of his performance as president. But the projection also shows how dissatisfaction with Mr Trump is widespread even in states that voted for him just a few months ago. The numbers will make anxious reading for Republicans facing competitive races in next year’s midterm elections.