Following up from my June 30 post Houston, … Houston?, my analysis of recent hard/soft data increases the odds of a stealthily softening economy amid investor complacency.

Steady Hiring Added 147,000 Jobs to U.S. Economy in June

That was Friday’s WSJ headline. Wells Fargo quickly sent this summary:

The headline employment data for June generally were encouraging. Nonfarm payrolls increased by 147K last month, clearing a relatively low consensus forecast of 106K. Revisions to job growth in May and April were modestly positive. The unemployment rate fell by one tenth to 4.1%, and in a separately released report, initial and continuing jobless claims were roughly unchanged in the most recent week for which we have data.

Beyond the headlines and summaries:

But, underneath the surface, the details were less encouraging and generally were consistent with a cooling labor market. The breadth of hiring was once again quite narrow. An unusually large jump in state and local government education employment (+64K) may be a seasonal quirk related to the end of the school year in June. Health care & social assistance and leisure & hospitality once again posted solid gains, but outside these sectors hiring in the rest of the economy was relatively flat. Furthermore, the decline in the unemployment rate was partially driven by workers leaving the labor force. The labor force participation rate fell to 62.3%, its lowest reading since December 2022.

Later Friday, the WSJ got gloomier:

American Companies Hit the Brakes on Hiring U.S. economy added 147,000 jobs in June, but nearly half were in government

(…) Last month, businesses added 74,000 new jobs, an anemic number compared with previous months. Private-sector job growth fell to the lowest level since October 2024. Of the 147,000 total new jobs added in June, nearly half were in government, bolstered by a jump in state and local government jobs.

On top of that, more than half of private industries cut jobs in June, Labor Department data indicates—only the third time this has happened since April 2020. For most of the postpandemic period, the majority of industries were adding jobs. (…)

Companies across the economy have plans to trim head count in the coming months. In June, Procter & Gamble announced it would cut 7,000 jobs—or 15% of its nonmanufacturing workforce—to create “broader roles and smaller teams.” Microsoft said this past week that it plans to cut 9,000 workers, after eliminating 6,000 roles across its product and software development teams in May.

On Thursday, United Parcel Service said it planned to offer buyouts to its delivery drivers for the first time in its 117-year history. UPS decided to offer the buyouts because the company is navigating “an unprecedented business landscape” and reorganizing its network, a company spokesman said. (…)

Manufacturing employment fell in June for the second straight month, data from the Labor Department shows. The drop was particularly noticeable, Kolko said, in high-wage manufacturing sectors such as semiconductors and machinery, which did well in recent years. (…)

“At large, we’re not really looking to grow our head count very dramatically,” Adobe Chief Executive Shantanu Narayen told investors last month. “We are finding a lot more efficiency. People are using AI to be more efficient within the enterprise.” (…)

Employers say they are seeing more applicants for every job opening, and they sense a new level of anxiety among job seekers.

“There’s just a fear and desperation in the candidate population that I haven’t seen in a very, very long time,” said Tom Lott, the head of talent acquisition at Berry Appleman & Leiden, a law firm in the Dallas area.

More details:

Some 124,000 (84%) of the 147,000 new jobs were in government, education, healthcare and social assistance. Local and state government payrolls made up 80,000. While a job is a job, these are not very economy sensitive nor the best paid jobs.

This chart plots quarterly changes in government, education, healthcare employment and all other jobs since Q1’23. Not friendly trends, especially considering that the faster growing, but rapidly slowing segments are only 31% of all employment.

On a monthly basis, the contribution of government, education, healthcare has been rising this year while all other jobs seriously slowed in June to a low 23k new jobs. In Q2, the red bars totaled 67% of the aggregate job growth. The odds are high that the jump in June was an aberration on the government side, particularly in education.

What are the odds that June was the start of a new, weaker normal for all other jobs? Goods producers produced only 4k new jobs since March, 2k in the last 2 months. Contributions from service providers other than government, education and healthcare were only 17k in June,down from 49k on average in the previous 3 months.

The industry diffusion index fell below 50 again in June. It only happened in recessions since 1993. The lagging industries are mostly the most dynamic in the economy.

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

The decline in the unemployment rate last month owed mostly to a reduction in the workforce. Monthly numbers on the household survey can be noisy, but it’s not a good sign that the labor force has shrunk by 364,000 since January.

The foreign-born labor force has declined by 735k YtD. Deportation arrests could accelerate given the $170 billion for immigration enforcement and homeland security voted in the tax bill.

While labor supply is shrinking, demand keeps waning. The latest JOLTS data was surprising but Indeed Job Postings kept falling through June 27. Indeed numbers are down 3.2% since the two line last met mid-March.

Unemployment claims are climbing, slowly but surely, while continued claims have reached levels not seen since 2018 other that during the pandemic. People losing their job have a much harder time finding another one.

Labor demand is not cratering however. The latest S&P Global PMI (see below) saw sustained services job growth (-0.2 points to 52.9) although the ISM employment component declined 3.5 points to 47.2. Which is right?

Manufacturing employment is problematic. The ISM:

Tepid demand and shrinking order backlogs help explain a faster rate of decline in factory employment. The ISM gauge dropped to a three-month low. It’s also contracted five straight months.

According to the report, for every comment on hiring, there were 3.2 indications of employment cutbacks. That is one of the widest ratios since the ISM began tracking employment comments and shows companies are focused on accelerating headcount reductions due to a lack of clarity on demand.

Just to confuse you even more, S&P Global Manufacturing survey noted that ”employment increased during June for a second successive month and at the fastest pace for over two-and-a-half years.” Which is right?

Bloomberg focuses on the unemployed:

As a quick reminder, the BLS only considers you unemployed if you were available to work and have actively looked for work in the past four weeks. Otherwise, you’re considered “not in the labor force,” a category that includes so-called “discouraged” workers (who want a job but have stopped actively hunting because they don’t believe there are any available to them) and the “marginally attached” (who stopped looking for other reasons).

The numbers of such people are trending upward, as are ratios of labor underutilization such as the U-4 metric, which measures the numbers of unemployed plus discouraged workers. (The denominator of this ratio is the sum of the labor force and discouraged workers.)

Who are all these discouraged and marginally attached workers? First, young recent graduates are notoriously having a hard time finding work. Some observers blame over-hiring during the pandemic years, while others think that artificial intelligence is already allowing companies to do more with less, at least at the margin.

Another hypothesis is related to the recent trend in immigration policy and rhetoric.

The confusing policy environment may also be prompting employers to hire fewer immigrants, a related source of potential discouragement.

Even more generally, hiring rates are simply bad: Irrespective of age and birthplace, it’s just hard to find a job these days.

Others focus on layoffs:

US-based employers announced 47,999 job cuts in June, bringing total Q2 2025 layoffs to 247,256, the highest Q2 total since 2020. Year-to-date, firms have announced 744,308 job cuts, the most for any first half of the year since 2020. Outside of 2020, this was the highest first half since 2009, when 896,675 cuts were announced. The government sector has led the surge with 288,628 layoffs, including federal and contractor reductions. Retail and technology sectors followed, with 79,865 and 76,214 job cuts, respectively.

@KobeissiLetter

A better clue of the supply/demand balance could be found in wage trends.

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

Clearly, the labor market is not a major source of inflationary pressure at present. The Fed will surely hold on July 30. It then meets only in mid-September when it could be faced with slowflation and slow labor.

Looking at the impact on the consumer wallet, quarterly data show a steady trend in aggregate weekly earnings (employment x hours x wages) at 5%…

… but monthly data has become more erratic with 2 of the last 3 months being rather weak following upbeat trends during Q1.

With employment growth at 1% YoY (possibly slowing) and wages rising in the 3% range (possibly slowing), consumer resiliency will be tested in coming quarters, particularly if inflation accelerates from tariffs. Recent monthly data reveal a shaky consumer.

In fact, real expenditures have not grown at all since December:

In the real world:

To Understand the Economy, This Fed President Is Ditching His Desk Tom Barkin is looking for clarity about inflation, tariffs and employment the old-fashioned way: He’s talking to people.

Sitting around a table with 15 local business leaders, Tom Barkin peppered them with questions like an economic detective. Are you planning to expand or shrink your workforces? Are you making new investments or pulling back?

When the conversation turned to inflation, the Richmond Fed president extracted an uncomfortably honest answer about how President Trump’s tariffs have some firms thinking about their power to raise prices.

“You can probably appreciate this from your McKinsey background: We’re raising prices where we can,” said Jim Datin, a Chapel Hill-based life-sciences executive and partner at a private-equity firm.

And what convinced Datin his company still had pricing power, Barkin asked, when conventional wisdom said it had evaporated?

“Some of it’s opportunistic with the supply chain right now,” Datin offered.

“In other words, tariffs,” Barkin said, translating the corporate-speak. Then the management consultant-turned-central banker cut to the chase: Are those price increases for tariff-related costs or are his businesses using “tariff noise” as “air cover to raise prices”?

“It’s both,” said Datin. “And I feel a little guilty saying that.” A regional banker chimed in: Some of his customers were reporting the same thing.

It’s this kind of candor that is keeping Barkin on edge—businesses raising prices not because they have to, but because they think they can get away with it. For Fed officials who fought hard to bring inflation down, such admissions make them uneasy. (…)

The more businesses he talks to, the hazier the outlook becomes. Firms are caught in what he calls the “cage match”—trying to protect margins squeezed by tariff costs while facing customers fatigued by price hikes.

On top of that, businesses are frozen by policy uncertainty. “If you’re driving in a fog, you can’t put your foot on the gas because you might run off a cliff, and you can’t put your foot on the brake because someone behind might wreck into you,” he said. “All you can do is pull over and put on the hazards.”

On Thursday, the Labor Department reported the economy added a better-than-expected 147,000 jobs in June, and the unemployment rate ticked down to 4.1%. The data validate the Fed’s current holding posture, Barkin said in an interview on Thursday. “In a market where the demand side seems relatively stable and the inflation side is quite unclear, I think you just wait for the fog to lift,” he said.

His fieldwork suggests two plausible scenarios: Businesses could successfully pass along more tariff costs and create new anxieties around inflation, or they could find themselves forced to absorb those costs and cut workers to protect profits. Either outcome would create headaches for Fed policymakers, just different kinds.

A couple of Fed officials are ready to resume cuts because they think the economy isn’t strong enough to support ongoing price hikes. They think higher prices from tariffs will be a one-off. Barkin doesn’t sound as confident. He worries about the “lingering effect” of past inflation because businesses have more skill raising prices.

“You’ll have winners and losers out of this,” Barkin said. “You’ll have people who are able to maintain their margins and people who will struggle. It gets to this question of, ‘What does the American consumer think is essential?’ ” (…)

The flip side is that businesses are finding consumers increasingly resistant to price hikes. Jimmy Goodmon, president of Capitol Broadcasting Company, which owns the Durham Bulls minor-league baseball team, said ticket sales were slower at the start of the season than normal. Merchandise prices have gone up, but tickets haven’t.

Still, there’s more “complaining about the price, and that’s just something that we’re sensitive to,” he said. “It’s people saying, ‘This is just expensive.’“ (…)

But here’s another look at the real world, at least from an American point of vue:

“The middle class is shrinking because people are getting too rich to remain middle class.” (h/t Barry Ritholtz via Bruce Mehlman). Then add housing and the stock market …

Bruce also shows how household debt is not the same threat to the economy as in the early 2000s:

In fact, Americans, in aggregate, are quite relax on their indebtedness. The important words are “in aggregate”.

US Services PMIs: Growth sustained in June, but to softer degree as tariff uncertainties linger

The S&P Global US Services PMI^® Business Activity Index registered 52.9 in June. That was down from 53.7 in May to represent a slightly slower, but still solid, increase in activity. Growth has now been recorded for 29 successive months though remains noticeably slower when compared to the marked increases seen in the second half of 2024.

New business volumes continued to rise during June, with growth solid but also down since May. There were some suggestions from panelists of an underlying improvement in economic activity, especially in local markets and from domestic clients more broadly. In contrast, international sales fell for a third month running (albeit slightly) as tariffs and US trade policy uncertainty continued to weigh on foreign demand. On average, the decline in services exports during the second quarter was the steepest since the end of 2022.

Tariffs continued to impact costs during June, playing a noticeable role in driving up operating expenses according to anecdotal evidence. Higher supplier charges and increased wage expenses added to the upward pressure on input costs, although inflation overall was softer than May’s near two-year high. Average output charges similarly rose to a slightly lesser extent as competitive pressures restricted the degree to which selling prices increased during June.

Jobs growth meanwhile was sustained in the latest survey period, with the latest upturn the best recorded since January. Higher workloads were the primary motivation for firms to recruit additional staff. Some panelists noted success in filling vacancies at their units. A solid accumulation of work outstanding was seen in June, reflective of some pressure on capacity caused by the upturn in new business volumes. It was the fourth successive month in which a rise in backlogs has been recorded.

Finally, looking ahead to the next 12 months, the outlook for activity remains positive overall. Some panelists are hopeful of a more stable economic environment and are planning to launch new services over the coming year. However, sentiment softened since May and remains well below the survey average. Panelists continued to signal some worries over trade and broader federal government policy uncertainty.

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

(…) “Viewed alongside an improvement in manufacturing growth reported in June, the services PMI indicates that the economy grew at a reasonable annualized rate approaching 1.5% in the second quarter, with momentum having improved since the lull seen in April. Rising demand for services has meanwhile encouraged firms to take on additional staff at a rate not seen since January.

“We are seeing some worrying signs of weakness below the headline numbers, however, notably in respect to exports and falling activity among consumer-facing service providers, which has curbed the overall pace of economic expansion. Concerns over government policies have meanwhile created uncertainty and dampened spending on services more broadly, while also ensuring confidence in the outlook remains subdued compared to the optimism seen at the start of the year. The continued expansion of business activity in the coming months along the lines seen in June is therefore by no means assured.

“Price pressures have remained elevated in June. Although weak demand and intense competition were reported to have helped moderate the overall rate of increase compared to May, the overall rate of prices charged inflation for services remains the second-highest for over two years, thanks to widely-reported tariff-related cost increases, and will likely contribute to higher consumer price inflation in the near-term.”

• Technology sector tops growth rankings with fastest rise in output since May 2023

US Sector PMI^® indices are compiled from responses to questionnaires sent to purchasing managers in S&P Global’s US manufacturing and services PMI survey panels, covering over 1,000 private sector companies. Indices are available for the basic materials, consumer goods, consumer services, financials, healthcare, industrials and technology sectors.

Four out of seven US sectors registered an upturn in business activity during June, down from six in May and the lowest number since September 2024.

Technology was the best-performing segment (index at 57.4), with the rate of output growth accelerating to its highest for just over two years.

Production of Consumer Goods also gained momentum in June. Higher levels of output have now been recorded for three consecutive months and the latest expansion was the strongest since April 2022.

Business activity in the Financials sector expanded at a robust pace that was the fastest for five months. Industrials also registered an increase in output levels during June, although growth momentum eased since the previous month.

Meanwhile, lower levels of business activity were seen in the Healthcare, Consumer Services and Basic Materials sectors. Although only marginal, the reduction in Consumer Services output was the first since January 2024.

Basic Materials was again the weakest-performing sector in June (index at 48.2). However, the latest fall in production volumes was the least marked since the downturn began in March. At the same time, producers of Basic Materials recorded by far the steepest rise in average cost burdens. The overall rate of input price inflation in the Basic Materials sector was the strongest since July 2022.

OPEC+ to Further Accelerate Supply Boost With Larger August Hike

OPEC+ will increase production even more rapidly than expected next month, as the group led by Saudi Arabia seeks to capitalize on strong summer demand in its move to reclaim market share.

Eight key alliance members agreed to raise supply by 548,000 barrels a day at a virtual meeting on Saturday, according to delegates. The group previously announced increases of 411,000 barrels for each of May, June and July — already three times the level originally planned — and traders had expected the same level for August.

The latest increase builds on a dramatic strategy pivot by the Organization of the Petroleum Exporting Countries and its partners to accelerate the revival of curtailed production. Since April, the group has shifted from years of output restraint to reopening the taps, surprising crude traders and raising questions about its long-term strategy.

OPEC+ is returning curtailed capacity into a market that is widely expected to be oversupplied later in the year. Brent oil futures have retreated 8.5% in 2025, pressured by the added production from OPEC+ members and elsewhere, alongside an uncertain demand outlook as President Trump’s trade war threatens to rattle the global economy.

However, the market looks more robust in the immediate term, and some delegates said the group is speeding up its production revival in part to take advantage of stronger demand during the northern hemisphere summer. Refiners in the US have been churning through the most crude for the time of year since 2019, and prices for some fuels, particularly diesel, have soared.

In the months following the strategy pivot, delegates have offered a range of explanations for the shift: from satisfying peak summer fuel needs, to punishing the group’s over-producing members and regaining sales volumes ceded to rivals like US shale drillers. Officials have said that Riyadh is especially eager to restart more idled capacity as quickly as possible.

The larger August increase would put OPEC+ on pace to complete the return of 2.2 million barrels a day of previously halted output in September — a year earlier than scheduled in their original roadmap.

“With OPEC+ having pivoted to a market share over a price defence strategy, it was pointless to keep a notional voluntary cut in place,” said Harry Tchilinguirian, group head of research at Onyx Capital Group. “It was best to get it over and done with it, and simply move on.”

Still, the actual increase will likely be lower — the group has produced below the figures announced in previous months as Saudi Energy Minister Prince Abdulaziz bin Salman presses some members to compensate for earlier over-supply and forgo their share of the increases. Kazakhstan — the most egregious offender — continues to pump hundreds of thousands of barrels above its quota. (…)

The extra barrels may be welcomed by President Trump, who has repeatedly called for lower oil prices to bolster the US economy, and needs to stave off inflation while pushing the Federal Reserve to lower interest rates.

Yet the added output also threatens to swell a looming supply surplus. Global oil inventories have been accumulating at a pace of about 1 million barrels a day in recent months, as consumption in China cools while production climbs across the Americas, from the US to Guyana, Canada and Brazil.

Markets are headed for a substantial surplus later this year, according to the International Energy Agency in Paris. Wall Street firms such as JPMorgan Chase & Co. and Goldman Sachs Group Inc. anticipate that prices will sink towards $60 a barrel or lower in the fourth quarter. (…)

By pushing for faster supply increases, Saudi Arabia must balance the benefits of higher sales volumes with the impact of falling oil prices. The kingdom is already grappling with a soaring budget deficit, and has been forced to slash spending on some of Crown Prince Mohammed bin Salman’s flagship projects.

OPEC+ co-leader Russia is confronting a deteriorating economic outlook and potential banking crisis as President Vladimir Putin continues to wage a costly war against neighboring Ukraine.

The drop in prices is also spreading pain through the American shale industry. In a recent survey, US shale executives said they expect to drill significantly fewer wells this year than planned at the start of 2025, citing lower oil prices and uncertainty around Trump’s tariffs.

Bill Delivers Near-Term Economic Boost, Longer-Term Risks Lower taxes on tips, overtime and capital spending offer modest tailwind, even as big deficits threaten future growth

Starting this year, more money will be spent on the military and border enforcement. Many people who earn tips, work overtime or are over 64 will pay lower taxes as soon as this year. The bill also reduces projected spending on Medicaid through provisions that will disqualify several million people from benefits starting in 2027, as well as food stamps.

But the vast majority of the bill’s price tag comes from extending provisions of the 2017 Tax Cuts and Jobs Act slated to expire Dec. 31. Those extensions aren’t going to change the behavior of individuals and firms the way the tax cuts did when first implemented, or the way President Joe Biden’s 2021 stimulus did.

That is a macroeconomic plus: Averting a tax increase is one less drag on an economy facing headwinds from Trump’s trade and immigration policies.

“The vast majority of it is a continuation of current policy, and everything else that’s being battled about is, you know, not big numbers,” said Michael Feroli, chief U.S. economist at JPMorgan Chase. “If you’re going to talk about GDP and macro things, you need big numbers to make it matter.” (…)

The benefit from the law could be significantly offset by Trump’s tariff increases. Goldman Sachs expects GDP to be about 1% smaller in the first quarter of 2026 as a result of the tariffs.

Among the provisions contributing to the bill’s near-term growth boost are temporary deductions for tip income, overtime pay and senior citizens; and full expensing of business investment. Increased spending on defense and border security are also expected to push up growth in the near term. The deduction for state and local taxes, which was significantly pared back in the 2017 law, will be expanded through 2029, at a cost of $142 billion. (…)

Meanwhile, cuts to Medicaid and other spending only take effect after the midterm elections next year.  Thus, the tax cut stimulus is frontloaded while the drag from spending cuts is backloaded.

“In the out years, [the bill] flips from fiscal expansion to fiscal contraction as the temporary tax cuts expire and as the planned spending cuts ramp up,” said Wells Fargo economists Michael Pugliese and Aubrey Woessner.

Backloading the spending cuts raises the risk that, in the future, Congress will vote not to implement them at all. (…)

The Committee for a Responsible Federal Budget, which advocates for smaller deficits, estimates if the bill’s various tax cuts and spending increases are made permanent, the bill would add $5.5 trillion instead of $4.1 trillion to deficits through 2034, pushing debt to 127% of GDP. 

Penn Wharton Budget Model estimates that that added debt crowds out private investment and will leave the U.S. economy 0.3% smaller at the end of 2034 than if TCJA expired, not larger as the White House claims. That drag grows over time: After 30 years, GDP will be 4.6% smaller and wages will be about 3.5% lower.

“That’s a pretty sizeable reduction,” Smetters said.

Canada: Service sector activity declines at quicker pace in June

Canada’s services sector endured a challenging month in
June, with activity and new business both continuing to decline amid widespread market uncertainty. Confidence in the outlook also remained subdued, although firms added to their staffing levels modestly. This helped them to comfortably keep on top of overall workloads.

Meanwhile, prices data showed stronger inflationary pressures. Input costs rose to the greatest degree since October 2022, driven by tariffs, higher supplier prices and increased staffing expenses. In response, service providers increased their own prices at the fastest pace in just over a year.

 

Canada Goods Trade Deficit Narrows as Flows With U.S. Continue to Slacken

Canadian exports to the U.S. continued to slump in May, sandbagged by shifting tariffs and Washington’s mercurial trade policy, while shipments to other countries rose and hit fresh highs.

Weak demand in the U.S. for Canadian goods and weak imports by Canadians helped narrow the country’s merchandise-trade deficit in May to 5.86 billion Canadian dollars, the equivalent of about $4.31 billion, Statistics Canada said Thursday. That figure came off a peak C$7.60 billion deficit in April that was upwardly revised.

May’s deficit was the fourth consecutive monthly shortfall. While Canada has had trade deficits in the past, those of the last four months generally reflect the new drumbeat of trade policy in Washington. (…)

The share of exports destined to the U.S.—Canada’s biggest market by far—fell to 68.3% in May, the lowest in decades outside of the pandemic. By contrast, in 2024 the monthly average was 75.9%. (…)

Four months of falling shipments to the U.S. suggest Canadian exporters continue to struggle to ensure their goods are compliant with the existing Canada-U.S.-Mexico free trade pact and exempt from higher tariffs, said Alexandra Brown, North America economist at research firm Capital Economics. (…)

Imports overall fell 1.6% from the month before to C$66.66 billion, including a 1.2% decline in imports from Canada’s nearest neighbor. (…)

• Toronto Home Prices Fall for a Seventh Month as Economy Slows

The benchmark price of a home in the country’s largest city slipped 0.9% in June from May, hitting C$978,200 ($720,164), according to seasonally adjusted data released Friday by the Toronto Regional Real Estate Board. (…) Toronto’s June benchmark price is the lowest since March 2021. (…)

EARNINGS WATCH

The earnings season officially begins this week but we already have some early reporters. 19 companies have reported, 11 consumer-sensitive, 5 tech, 2 industrials and 1 financial. Their earnings are up 6.5% vs +10.1% in Q1. Revenues: +6.5% vs +5.9%.

Earnings surprise: +5.2%.

TECHNICALS WATCH

My good friend Hubert Marleau posted last Friday:

On Tuesday last, for the first time in more than two years, the S&P 500 scored a bullish “golden cross”: a popular and reliable indicator used widely by technical analysts as a gauge of momentum, which activates when the 50-day moving average crosses above the 200-day moving average.

Craig Johnson, chief market technician at Piper Sandler says: “Put that occurrence together with broadening participation and breadth, and we’re setting up for a strong second half of the year.”

History shows golden crosses have faithfully and accurately presaged further gains, according to Dow Jones data. Market Watch wrote: “After a golden cross, the S&P was higher one year later more than 71% of the time, with an average one-year return more than 10%, according to data going back to 1928. By comparison, the average 12-month return for the index during any 12-month period since 1928 has been about 8%.

Returns following the past 20 golden crosses have been even stronger, on average: In this sample, the 1-year advance rises to more than 13, with a hit rate of 85%.”

This makes me confident that my 6600 S&P 500 target will be attained before the year ends.

This time the cross happened with less than 50% participation…

Not a slam dunk, however:

Source: @DualityResearch

Source: @SubuTrade

The 13-34 EMA has reversed its May 31 negative signal:

Hubert went on listing these bullish calls:

Why Did the S&P 500 Hit a New High? Tom Essay (Sevens Report) offers four reasons:

1. The market believes the Administration will not pursue any policies that will materially hurt the economy.
2. The market believes that any inflationary effects of tariffs will be more than offset in the data by cooling housing and energy prices; and that as a result, neither the CPI nor the PCE Price index will rise materially. It also expects two Fed rate cuts in the second half of 2025 to support growth, reducing the chances of a slowdown.
3. AI enthusiasm has propelled the tech sector, a powerful force behind the rally.
4. Valuations are more reasonable because analysts have quickly pivoted to using 2026 earnings estimates, which are $295 per share versus $260 for 2025.

Morgan Stanley’s Michael Wilson has four reasons on his own why the stock market has more room to run:

1. Analyst forecasts for S&P 500 earnings have improved markedly, widening beyond the popular tech names. Moreover, the weaker dollar and Trump’s favourable new tax incentives for businesses will bring wider profit margins.
2. He thinks that expectations of Federal Reserve policy are shifting, and that the Fed will cut interest rates no less than 7 times in 2026, as unemployment becomes more of an issue than inflation.
3. Stocks have traditionally shrugged off exogenous shocks and the proposed ‘revenge tax’ has been scrapped.
4. The Treasury market’s term premium has stabilised because dollar weakness has made it more attractive to foreigners.

Hardika Singh, economic strategist at Fundstrat Global Advisors has four further reasons why she thinks that “American Exceptionalism” has not left town:

1. The rise of AI technology is rapidly changing the labour markets, business models and education, and the US is the undisputed leader.
2. U.S. workers are productivity powerhouses. Since 2014 US productivity has risen 17% compared to 5% in the eurozone.
3. The US is still the best place in the world to make big money: 35% of all wealth is in the U.S., which is home to 40% of the world’s millionaires.
4. U.S. companies have the knack of generating superior returns on invested capital.

Ned Davies Research, in a note to clients said that the bearish holdouts – pointing the finger at investors who are Democrats – could open the door to another rally when they finally capitulate and convert into bulls. With the current sentiment among Democrats at its lowest level since 2017, fully 48% of Democrats surveyed were very concerned about volatility.

In another survey, 89% of the respondents are now treating their investments as a form of savings. This is bound to abruptly change sentiment among Democrats as they start to realize that America is not losing its lead, and may indeed fuel the next up-leg of the stock market.

BofA’s Michael Harnett says that the S&P 500’s rally to record highs has brought it within striking distance of a sell signal. He recommended investors start offloading shares once the benchmark rises above 6,300 points (6279 Thursday).

He also reiterated that bubble risks were rising into the summer, with the House passing a $3.4 trillion fiscal package that cuts taxes.

“Overbought markets can stay overbought as greed is harder to conquer than fear,” Hartnett wrote in a note. (…)

AI CORNER

“On average, workers are 33% more productive in each hour that they use generative AI.” (Federal Reserve Bank of St. Louis, Vanderbilt & Harvard universities).

Trump’s Plan to Revive U.S. Shipping Stumbles White House moves prompt staff cuts at a new shipbuilding office and warnings of setbacks at shipyards and the Merchant Marine

Government efficiency teams have paused food-aid programs that provide needed cargoes for the U.S.-flagged Merchant Marine. A senior Republican senator is warning of cuts to the proposed budget for military shipbuilding. The staff at a newly created office to coordinate maritime policy has been cut to two people from seven.

Shipping industry executives say they don’t doubt the president’s desire to expand the maritime industrial base. They say some of the recent setbacks are a function of the unintended consequences of competing agendas within the administration. (…)

Some industry officials warn that if the [Food for Peace] program isn’t resurrected under another government department soon they will have to start laying up ships and laying off seafarers.

The Trump administration has no plans to rescue the program. A senior administration official said the program was wasteful and that the State Department “is committed to responsibly winding down” the program despite efforts in Congress to transfer Food for Peace to the U.S. Department of Agriculture. (…)

Maritime specialists also are concerned about the newly created shipbuilding office at the National Security Council. (…) The office, however, has shrunk because of broader cuts across the National Security Council (…). The senior administration official said: “The right-sizing of the NSC has made processes more streamlined and efficient.” (…)

Xi Has Spent Decades Preparing for a Cold War With the U.S. Chinese leader Xi Jinping’s strategy draws on his understanding of Soviet failures

In the U.S.-China conflict, President Trump is waging an economic assault. But Chinese leader Xi Jinping is fighting a Cold War.

Xi is entering trade negotiations with a grand strategy he has prepared for years—one that, according to policy advisers in Beijing, is inspired by his understanding of what the Soviet Union got wrong during the first Cold War.

Well aware of the U.S.’s continued economic and military superiority, the advisers say, Xi is seeking to avoid direct confrontation, while holding China’s ground in a protracted, all-encompassing competition.

Xi aims to achieve what Mao Zedong used to call a “strategic stalemate”—an enduring equilibrium where American pressure becomes manageable and China buys time to catch up to the U.S.  (…)

FYI:

• Playing the odds: In the new bill, gamblers would only be able to deduct 90% of their losses from their net income when paying taxes. Currently, gamblers can deduct 100%. A hypothetical gambler who won $100,000 but lost $100,000 would have to pay taxes on $10,000 of income.
• The bill allows taxpayers to deduct up to $10,000 of annual interest on auto loans for new cars assembled in the US. At the current average interest rate for new car loans of 6.7%, maximum loan is $149k (prime), $102k (9.8% near prime) and $75k (13.2% subprime). The average price of a new car purchased in the United States is currently around $48,000. Vehicles priced above $75,000 account for approximately 5% of all new car sales in a typical month. Above $100k, 1.7%.

• Trump said his 250th-anniversary plans include a UFC fight on the grounds of the White House. Good grief! Perhaps MegaElon vs MagaTrump.

The Jobs Market Is Starting to Fall Apart Even if Thursday’s jobs report comes in strong, a look behind the headline number tells a different story

Economists expect that the Labor Department’s monthly jobs report on Thursday will show that the economy added 110,000 jobs in June.

This year through May, the U.S. has added an average of 124,000 jobs a month. That is down from last year’s average of 168,000 a month—a reflection in part of how stop-start tariffs, government layoffs and an immigration crackdown could be catching up to the job market. More fundamentally, slow population growth and an aging workforce make it harder for the U.S. to add jobs like it did in the past.

The good news has been that layoff activity has remained relatively low, with employers hanging on to workers despite worries about the economy. And wage growth remains decent. But economic uncertainty has slowed the pace of hiring. (…)

Evidence is mounting that the headline jobs number could be overstated and that the pace of job growth has been significantly slower than what the monthly jobs employment report has shown.

Consider the regular revisions the Labor Department makes to its jobs report. Thursday’s release will focus on June data. But it will also update, or “revise,” the previously released jobs numbers for April and May.

For January through April, the Labor Department has so far revised down the monthly employment gains by an average of 55,000 jobs. March went from a headline of 228,000 jobs added when it was first announced, to 185,000 when it was first revised, to 120,000 when it was revised again.

Pantheon Macroeconomics economist Samuel Tombs reckons that is because a lot of employers don’t respond in time to this survey. Employers that do respond quickly are more likely to be large, well-capitalized and well-run.

The late responders are more likely to be small and to lack the deep pockets and know-how to more easily weather challenges such as high tariffs and the sharp slowdown in the supply of immigrant labor. As responses from those laggards come in, the jobs picture dims.

The Labor Department also twice a year releases data about “benchmark” revisions to a whole year’s worth of jobs figures. A preliminary estimate comes out in August, followed by a final revision in February.

Those revisions are based on the Labor Department’s Quarterly Census of Employment and Wages, or QCEW.

The QCEW for the fourth quarter was released in June and it showed the U.S. gained far fewer jobs from March to December than what the headline figures show. Adjusting the QCEW data for seasonal swings, Barclays economist Jonathan Millar calculates it shows the U.S. added 607,000 jobs over those nine months—or fewer than half the 1.4 million jobs initially reported in the monthly figures for that period. (…)

ADP, which processes paychecks for companies across the country, also releases a monthly report on U.S. jobs. And though it doesn’t cover government employers, it has been showing a sharp slowdown. 

Its data suggests that smaller companies, in particular, have ratcheted down hiring. On Wednesday, it reported that overall private-sector employment declined by 33,000 jobs in June from May. That was driven by a loss of 47,000 jobs at employers with fewer than 50 employees. So far in 2025, those small companies have added an average of only about 5,300 jobs a month—far fewer than last year’s average gain of nearly 40,000 jobs.

But if jobs growth is less than advertised, that might not be so much an indication of a weakening economy, but of a country that can no longer add jobs like it used to. The population of native-born Americans who are working age is barely growing, and the addition of new immigrants into the labor force has now been severely curtailed.

In a report Wednesday, economists Wendy Edelberg and Tara Watson of the Brookings Institution and Stan Veuger of the American Enterprise Institute concluded that net immigration to the U.S. this year will likely fall to zero or be negative, with more people leaving the country than entering. As a result, they think that the economy might only need to add as little as 10,000 to 40,000 jobs a month in the second half of 2025 to keep the unemployment rate, currently at 4.2%, steady.

That might not sound so bad: If there are fewer workers, fewer jobs are needed to prevent the ranks of the unemployed from swelling. The downside is that an economy that can’t add jobs like it used to can’t grow as fast, either.

About the ADP report:

Private industry payrolls fell 33,000 during June according to ADP. It was the first decline since March 2023, after a downwardly revised increase of 29,000 in May.

The ADP payroll series has been weaker than the BLS series during Q2. It was stronger in previous months, which explains why the average monthly increases over the last 12 months have been almost the same (124,200 vs. 122,000). (Ed Yardeni)

• Trump Floats a Mass Deportation ‘Temporary Pass’ The President says he wants a reprieve from migrant raids for farmers, hotels and some others.

If you’re confused about the Trump Administration’s mass deportation policy, join the club. First it was the full Stephen Miller, deporting every illegal in the land. Then there was going to be a reprieve for the agriculture and hospitality industries, then it was back to the full Miller. On Sunday the President said he now wants a “temporary pass” for some businesses. (…)

“You know, I’m on both sides of the thing. I’m the strongest immigration guy that there’s ever been, but I’m also the strongest farmer guy that there’s ever been, and that includes also hotels and, you know, places where people work, a certain group of people work.”

Mr. Trump says the White House is working on “some kind of a temporary pass, where people pay taxes, where the farmer can have a little control as opposed to you walk in and take everybody away.” (…)

A recent Dallas Fed analysis concluded:

• Unauthorized migration is down sharply mainly due to a decline in inflows.
• Surge migration increased job and output growth in recent years and reversal of migration will do the opposite

Light Vehicles Sales Decreased to 15.34 million SAAR in June

The BEA reported this morning that light vehicle sales were at 15.34 million in June on a seasonally adjusted annual rate basis (SAAR). This was down 1.7% from the sales rate in May, and up 2.3% from June 2024.

Note that sales in June 2024 were depressed by a cyberattack impacting dealers’ online systems. This makes the YoY comparison look better.

Inside America’s department stores, tariff-triggered price hikes are picking up

(…) Recent price increases in apparel, footwear, and bags across major U.S. department-store websites tracked by DataWeave indicate a turning point in May, when prices started their ascent.

DataWeave analyzes nearly 15,000 SKUs (stock keeping units), a scannable code retailers use to identify and track a product, and has been collecting that data from January to June for signs of price hikes in footwear, apparel, and bags.

“Footwear is now as much as 4% above January levels at some banners, while apparel is roughly half that pace,” said Karthik Bettadapura, co-founder & CEO of DataWeave. (…)

Private-label lines, many of which are made in China, refresh every few months, so retailers like Macy’s and Nordstrom feel higher landed costs sooner, according to Bettadapura. Footwear reacts fastest because it carries some of the steepest baseline duties and relies heavily on China for finished pairs. “Even a modest levy can ripple through quickly once fresh stock lands in distribution centers,” Bettadapura said. Apparel, with longer design cycles and a more diversified supply base, “is moving more gradually,” she added.

The SKU data supports findings from a recent survey conducted by the Footwear Distributors and Retailers of America, where 55% of respondents said they expect their average retail price to rise between 6%-10% in 2025 as a result of tariffs.

“With all back-to-school styles now facing tariffs of between 10-30 percent, higher prices should not be a surprise this summer,” said Stephen Lamar, CEO of the American Apparel and Footwear Association. “While each company makes their own decisions, these tariff costs are now being felt across the board,” he said.

In apparel, DSW topped the list in recent price increases, at 2%, followed by Macy’s (1.9%), and Nordstrom (1.8%), according to Dataweave. (…)

 

Trump said in a social post the tariff rate on Vietnamese goods will be 20%, and go to 40% for any goods that are finished in Vietnam but originate in other countries, such as China, in what is called “transshipment,” a supply chain strategy also known as “China Plus One” that has been used by companies to avoid tariffs.

Apparel companies that rely on Vietnam’s manufacturing capacity could face higher import costs under the new tariff rate. Nike, Lululemon, Patagonia, Puma, and H&M are among retail industry companies with manufacturing operations in Vietnam.

Vietnam is the second-largest supplier for footwear, apparel, and accessories sold into the U.S. market, according to the American Apparel and Footwear Association. (…)

The 20% tariff would be less than Trump’s initial threat of a 46% tariff on goods from Vietnam, but would be stacked on top of existing 10% most-favored nation tariffs paid by Vietnam, bringing the combined tariff to as high as 30% at a minimum, which could cause significant economic challenges for retailers. Meanwhile, the 40% transshipment tariff that has yet to be clearly defined by the administration. (…)

The Truflation Index on Goods is +2.1% YoY at the end of June, almost double its low March 2025 reading of +1.1%.

As I recently reported, prices of non-fuel imports rose 4.3% annualized in April-May after +0.9% annualized in the previous 12 months. They were up 1.7% YoY in May vs +0.5% one year ago. (Import prices exclude tariffs)

From June Manufacturing PMI: There was some notable upward pressure on input prices during June, with inflation accelerating to its highest in just under three years. Firms widely reported the inflationary impact of tariffs on prices, especially for metals like steel. In response, output charges were raised to the greatest degree since September 2022.

Canada PMI: Downturn in manufacturing sector gathers pace in June

The S&P Global Canada Manufacturing Purchasing Managers’ Index™ (PMI®) recorded 45.6 in June. That was down from 46.1 in the previous month and indicative of another steep deterioration in operating conditions. It was the fifth successive survey period in which the PMI has posted below the critical 50.0 no-change mark.

Production volumes were cut to the steepest degree in over five years in June amid a sharp decline in new work. Tariffs were widely reported to have adversely impacted market demand, and overall sales declined for a fifth successive month. International sales, especially from the neighbouring US, were especially weak. Latest data showed that new export orders declined in June at one of the steepest rates in the survey history. (…)

Tariffs were widely reported to have also driven up input costs during June, dominating the anecdotal evidence provided by those manufacturers which experienced a rise in prices. Although the rate of inflation softened during June to a four-month low, it remained elevated compared to the survey trend. Manufacturers sought to pass on their higher input costs to clients via a rise in their own selling prices during June. Similarly, the rate of inflation remained marked, despite easing to a four-month low. (…)

Sure sounds like weak demand south of the border.

Eurozone growth edges higher as outlook improves

The HCOB Eurozone Services PMI Business Activity Index rose above the 50.0 mark in June, signalling a resumption in growth of services output in the single currency area. At 50.5, up from May’s 49.7, the latest figure signalled only a marginal rate of expansion that matched the subdued trend over the first half of 2025 and was weaker than the average for 2024 (51.5).

Overall growth was limited by a further decline in new business in June, although the rate of contraction was only fractional. The level of outstanding work fell further, albeit at the slowest rate since May 2024.

Higher activity was supported by a sustained rise in employment at service providers, extending the current sequence of job creation to almost four-and-a-half years. The rate of hiring growth held steady at a modest pace broadly in line with the trend for the past 12 months.

Companies added to workforces as expectations for the next 12 months continued to recover from April’s low. Confidence was the highest in 2025 so far, albeit still below the long-run series trend.

Input price inflation eased for the third time in four months to a seven-month low, but remained relatively high. Meanwhile charges were raised at the fastest rate in three months.

The seasonally adjusted HCOB Eurozone Composite PMI® Output Index rose to 50.6 in June, from 50.2 in May. Although the latest figure signalled only marginal overall growth, it was the highest in three months and above the 12-month average. Both the manufacturing and services sectors posted higher output.

Of the five euro area economies for which manufacturing and services data are available, Ireland topped the growth rankings for the fourth month running, even as the pace of expansion eased to the weakest since January. Spain retook second place from Italy with a faster expansion. Italy’s economy expanded for the fifth month running, albeit at the softest rate since March. Germany returned to growth with a fifth rise in output in 2025 so far, albeit at a weak pace. France remained the laggard with activity declining for the tenth month running, albeit marginally.

The overall rise in output was supported by the completion of outstanding work, which declined for the twenty-seventh consecutive month. The rate of decline in backlogs was the weakest for just over a year, however. New business fell for the thirteenth month running, but at the weakest rate over this period. Manufacturing new orders stabilised during June and services demand weakened only marginally. International* demand fell slightly despite a stable trend in manufacturing exports.

Eurozone companies hired additional staff for the fourth month running in June. The rate of employment growth remained weak, however, as manufacturers continued to cut workforces. Germany, Italy and Austria were the sources of lower manufacturing jobs, while French service providers also cut staff.

June survey data signalled a further recovery in business confidence from April’s 18-month low, to the strongest since July 2024. Expectations improved at both manufacturers and service providers. The overall level of optimism remained weaker than the long-run series trend, however.

Input price inflation was unchanged from May’s six-month low, and below the long-run average. This reflected a further decline in manufacturers’ input costs, as service providers continued to register relatively sharp increases. Similarly, manufacturing output prices fell whereas service providers raised their charges at a rate that remained above the long-run average.

Commenting on the PMI data, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:

“The service sector has been more or less stagnant since April. (…) unlike in the past, companies have refrained from cutting jobs, even in weak quarters. As a result, private consumption, the key growth driver for the service sector, has not slumped massively since 2021. In June, companies even hired more people than in May, and a recession may therefore be avoided in the foreseeable future.

“The question is whether a robust recovery is even possible after the sluggishness in the service sector in recent years. This will probably be difficult for the eurozone as a whole, but in Germany, the largest eurozone economy, it is certainly a probable outcome, given the extraordinary stimulus package that the new government is currently putting in place. Even if civil engineering and the defence sector will benefit most from this, the fiscal stimulus is also likely to spread to the service sector, especially in the coming year. In any case, expectations for the next 12 months have improved for the eurozone, although the figure remains below the long-term average.

“The European Central Bank is unlikely to be entirely happy that sales prices in the services sector rose more strongly in June and that input prices are also rising sharply. In view of other factors such as the strong euro and the deflationary effect of US tariffs on the eurozone, the significance of services inflation, which looked more critical a year ago, is receding somewhat into the background.”

China Services PMI: Softest rise in services activity in nine months

The headline Caixin China General Services Business Activity Index posted 50.6 in June, down from 51.1 in May. This marked the thirtieth successive month in which the index has registered above the crucial 50.0 no-change mark to indicate an expansion of services activity in China. The pace of growth was the softest since last September, however.

Central to the softer rise in services activity was a moderation in the rate of new business growth. While marketing efforts and the launch of new products supported higher overall sales, the rate of expansion eased amid subdued global conditions. New export business declined for a second successive month and at the quickest pace since December 2022.

Staffing levels were lowered in June, which survey respondent soften linked to a slowdown in new order growth and concerns over costs. The fall in employment was only marginal, but nevertheless contributed to a build-up of outstanding work in June. The level of outstanding business increased at the most pronounced pace in a year.

Turning to prices, average input costs remained on an upward trend in June. Comments from panellists often pointed to higher raw material and fuel costs as the main drivers of inflation. The rate of increase eased to a three-month low and was marginal,however. Services companies opted to continue absorbing cost increases in June and cut their output charges for a fifth successive month. Anecdotal evidence suggested that intense market competition had underpinned the latest reduction in selling prices, which were cut at the sharpest pace since April 2022.

Overall sentiment in the service sector remained positive at the end of the second quarter. Service providers were hopeful that better economic conditions and business expansion plans will help to spur sales and push up activity levels over the next 12 months. The level of confidence rose for a second successive month in June, but remained well below the long-run average.

China domestic demand remains subdued.

Britain’s Welfare Reversal Hammers U.K. Bonds as Chancellor Tears Up Investors fret more taxes or borrowing are likely after the U.K. government abandoned a plan to cut welfare spending

Investors sold off British government bonds and the pound fell sharply on Wednesday after the Labour government abandoned plans to cut ballooning welfare costs and the country’s Chancellor of the Exchequer was seen crying in parliament.

The selloff came hours after the government of Prime Minister Keir Starmer shelved a plan to cut disability payments following a rebellion by Labour’s own lawmakers. The U-turn raised the prospect of the government hiking taxes or issuing more debt to fund its welfare system. It also casts doubt over the future of Rachel Reeves, the U.K. chancellor, who took the job just over a year ago promising a return to economic stability in Britain by sticking to strict spending rules. (…)

The government’s climbdown points to a broader truth for governments across Western Europe, where weak economic growth means countries are struggling to raise enough revenue to pay for rising costs from an aging population. With voters largely wary of spending cuts, that leaves higher taxes, which could hurt growth further, as the most likely outcome.

Britain is already on course to register the highest tax burden since World War II thanks to big spending during the pandemic and paying out for energy subsidies after Russia’s invasion of Ukraine. Meanwhile its growth prospects remain meager. The country’s Office for Budget Responsibility says growth could be 1% in 2025 and economists say even this looks optimistic.

The Labour Party was elected last July with a historically large majority and a mandate to fix the nation’s public finances. (…)

Reeves has repeatedly stated that she will stick by strict fiscal rules, which stipulate that day to day spending is matched by tax revenue and that government debt as a percentage of the economy will fall. In March, the cuts to disability payments were hurriedly introduced by the Treasury just before a review of departmental spending was scored by a budget watchdog.

The number of people claiming disability or incapacity benefits has risen from 2.8 million in 2019 to 4 million in 2025. Currently around 1 in 10 working age people in Britain are on such benefits, according to the Institute for Fiscal Studies, a U.K. think tank. The government aimed to tighten eligibility to bring these numbers down, get more people back into work and save £5 billion.

But when the government released guidance stating that the cuts to disability payments would push 150,000 people into poverty, its lawmakers rebelled.

• Starmer Vows to Stick to Budget Rules After UK Selloff Over Reeves Fears