America’s Small Businesses Hopeful of Boost From Trump’s Spending Bill The prospect of tax breaks has helped to lift the mood
The National Federation of Independent Business said Tuesday that its optimism index, a gauge of sentiment among small firms, rose to 98.8 in May from 95.8 a month earlier, taking the index back above its long-term average, represented by a reading of 98. The increase ends a four-month streak of worsening sentiment, as an initial post-election burst of confidence began to burst amid a whipsawing trade policy and concerns over inflation and a shrinking labor force.
“Although optimism recovered slightly in May, uncertainty is still high among small-business owners,” NFIB economist Bill Dunkelberg said. Still, the survey showed a leap in good feeling about firms’ prospects ahead. Nearly a quarter of responding firms plan to invest in capital outlay in the next six months, the highest reading this year and a sign that owners are increasingly confident.
The cheerier mood comes as Trump’s “big, beautiful bill,” which would offer new cash for defense, border security and agriculture and entails a big increase in the budget deficit, makes its way into the Senate, having narrowly been passed in the lower house. The bill also includes tax breaks for businesses; taxes are now small businesses’ primary concern, above inflation and labor costs, NFIB’s survey showed. But competing demands among Republican senators could stymie the bill’s passage into law. (…)
Wells Fargo notes that
There also appears to be a disconnect between current conditions on the ground and the economic outlook. Small firms’ expectations for business conditions and sales meaningfully strengthened in May while reports of actual sales, earnings and capital expenditures each deteriorated. The uncertainty index also climbed two points to 94, well above the historical average of 68.
Hiring plans also sank one point to 12% and the share of firms with job openings remained unchanged at the lowest reading since January 2021. Price and compensation pressures remain contained at present amid a directional deterioration in the labor market. However, an uptick in plans to raise prices possibly points to higher inflation readings this summer. Only 26% of firms on net reported raising compensation over the past three months, the lowest share since February 2021.
Taxes took the top spot as small firms’ most important problem in May. This issue will likely remain top of mind for small firms over the next couple of months as Congress irons out the details of its tax & spending bill.
Source: NFIB and Wells Fargo Economics
U.S. and China Agree to Get Geneva Pact Back on Track Move marks the latest twist in countries’ winding trade war
Representatives from the countries said the framework would essentially restore a pact they agreed to in Switzerland last month, a deal that saw both sides lower tariffs and was premised in part on Beijing’s promise to speed up critical mineral-export licenses while the negotiators kept talking.
“The two largest economies in the world have reached a handshake for a framework,” Commerce Secretary Howard Lutnick said. “We’re going to start to implement that framework upon the approval of President Trump, and the Chinese will get their President Xi’s approval, and that’s the process.”
A senior Chinese negotiator, Li Chenggang, nodded to Lutnick’s remarks, saying the two sides “agreed in principle.” (…)
The negotiators didn’t disclose exactly what they had agreed to as part of the framework, which could lead to continued uncertainty over the trade truce. And the lack of announced details might suggest the U.S. side will need Trump’s approval to undo some of the controls Beijing’s representatives asked for [loosen restrictions significantly on the sale of technology and other products to China]. (…)
“You should expect those to come off, sort of, as President Trump said, in a balanced way, when they approve” the rare-earth licenses, Lutnick said. “Then you should expect that our export implementation will come down,” he said. (…)
A recent commentary by the official Xinhua News Agency criticized the U.S. for allegedly viewing economic issues through the lens of security, saying, “This thinking will become the biggest obstacle” to cooperation between the two countries. Yet it also left the door open for relations to improve, saying strengthening economic ties will benefit both nations. (…)
“What’s become clear in the last few weeks is that this rare-earths issue has got real leverage for Beijing.” After raising tariffs on China to above 100%, Trump agreed to lower them as exporters and consumers felt the pain. (…)
Now, with a shortage of rare earths threatening automakers’ ability to keep production lines running, the U.S. has had to come back to the table—as China stresses that it was Washington that asked for the talks. (…)
Appeals Court Keeps Trump’s Sweeping Tariffs in Place for Now
The U.S. Court of Appeals for the Federal Circuit extended its earlier temporary pause of a trade court decision that found Trump exceeded his powers in imposing the tariffs.
The appeals court said it intends to hear arguments on July 31, which means the tariffs likely will remain in effect for at least the next two months.
All of the court’s active judges will participate in the case. The losing party is expected to seek review at the Supreme Court. (…)
“It’s important to note that every court to rule on the merits so far has found these tariffs unlawful, and we have faith that this court will likewise see what is plain as day: that IEEPA does not allow the president to impose whatever tax he wants whenever he wants,” he said in a statement.
The plaintiffs had warned the appeals court that allowing the tariffs to stay in effect while their case proceeds would be a death blow for some companies, even if they ultimately prevailed in court and were refunded the levies. (…)
The trade court’s May ruling, by a unanimous three-judge panel, found that Congress, which typically holds responsibility over tariffs, hadn’t given Trump the unilateral authority he claimed under IEEPA. And it said lawmakers couldn’t have delegated unbounded tariff authority to the president even if they wanted to.
The Justice Department argued that the trade court had wrongfully upended Trump’s efforts to correct the trade deficit and put the U.S. on equal footing in the global economy.
“The injunction threatens to unwind months of foreign-policy decision-making and sensitive diplomatic negotiations, at the expense of the nation’s economic well-being and national security,” the department said in its stay request to the Federal Circuit.
Tuesday’s order avoided offering any preview of the appeals court’s ultimate views. “Both sides have made substantial arguments on the merits,” the court said.
While on tariffs, Goldman Sachs notes that Japan export prices, which are closely watched in relation to tariffs, fell -0.7% MoM in yen terms in May,
continuing the decline since February, partly reflecting yen appreciation. Export prices also fell -0.9% mom in contract currency terms in May (April: -0.3%), which directly affects local sales prices in export destinations.
Export prices in contract currency terms have been declining since April, with a particularly notable decline for passenger cars exported to North America (-12.0% in May; -6.5% in April).
A 25% tariff has been imposed on US auto imports from Japan since April, and it is possible that Japanese exporters have started to lower export prices from Japan to mitigate the impact of the tariff on local selling prices.
Not great for margins.
The recent 90-day truce in the U.S.-China tariff war has prompted a flurry of activity among Chinese exporters, with traders rushing to ship goods overseas before tensions escalate again. But at the same time a major shift is underway among exporters — many are now trying to sell those same goods at home, as they scramble to hedge their bets against future global instability.
In April, as Beijing and Washington went to toe-to-toe with tariffs, foreign trade manufacturers turned to domestic consumers, launching high-profile “export-to-domestic sales” exhibitions and campaigns in supermarkets, department stores and shopping malls. Manufacturing areas held investment promotion conferences and e-commerce platforms tilted traffic toward “repatriated” foreign trade products.
GM Plans $4 Billion Investment to Boost U.S. Manufacturing The move gives the company the ability to assemble more than two million vehicles a year in the U.S., GM said
(…) The move could help America’s largest automaker defray up to $5 billion in annual costs from tariffs imposed by President Trump. The company manufactures nearly half of the vehicles it sells in the U.S. in foreign assembly plants. (…)
The announcement also marks the latest pullback on EVs from a company that once set an ambitious agenda for a transition to battery-powered vehicles. GM said its EV business is growing in the U.S.
The company said it is moving the gasoline-powered version of its Chevrolet Blazer SUV from a factory in Mexico to one in Springhill, Tenn. A battery-powered Blazer will continue to be produced in Mexico.
A factory in Orion Township, Mich., where GM originally planned to make battery-powered pickups, will now manufacture gas-powered trucks and SUVs instead. The electric trucks that were bound for Orion will be made at an existing dedicated EV plant near Detroit. (…)
Last month, GM dropped plans to invest $300 million in electric-vehicle motor production at its Tonawanda Plant near Buffalo, and will instead invest $888 million to produce V-8 engines at the facility.
GM said its capital expenditures could reach $12 billion annually in 2026 and 2027, up from a maximum of $11 billion this year, as it works to boost its U.S. production. (…)
Question: availability of a skilled and trained labor force that will work for competitive wages vs Mexico’s?
Gary Shilling last month reviewed the EV industry:
Some excerpts and key charts:
- BYD’s sales volume last year was nearly double that of Tesla and more than three times the rest of the top 10 combined.
- But several EVs—like some Tesla models, the Ford Mustang Mach-E, Chevrolet’s Bolt, Hyundai’s IONIQ 5, the Kia EV6, the Volkswagen ID.4 and the Ford F-150 Lightning—are selling at or below the average price of a gas-powered car.
- It seems that once someone buys an electric vehicle, they’re a customer for life. It’s getting people to actually purchase an EV that seems to be a big challenge for the industry. There aren’t a lot of independent customer satisfaction surveys out there, but one conducted last June by the Pew Research Center found that only about three in 10 Americans said they would very or somewhat seriously consider buying an EV, down nine percentage points from a survey taken a year earlier. And those who were most interested were people who already own one.
- Despite a number of headwinds— Trump’s lack of enthusiasm for the industry in general, concerns about the availability of charging stations, a likely end to federal tax credits and other issues described earlier—electric vehicles are probably here to stay and should weather the actions of an Administration decidedly less friendly to the industry.
- A risk is that the Administration and Congress will enact new tax rules that are too restrictive, leading to automakers scrapping, scaling back or delaying their manufacturing plans, for both electric vehicles and the batteries that power them. Doing so could come at the cost of thousands of good-paying manufacturing jobs of the type that Trump campaigned on expanding.
Unfortunately, Shilling’s analysis was almost totally US-centered other than plotting the sharp increase in global EV sales. Here’s what Americans (and Canadians since the Trudeau government blindly followed Trump’s 100% tariffs, thinking what are friends for?) are prevented from seeing and experiencing:
Battery Technology Breakthroughs: batteries are now delivering higher energy density, improved safety, longer lifespan, and faster charging. Sodium-Ion Batteries are emerging as a sustainable, cost-effective alternative to lithium-ion, thanks to sodium’s abundance and ongoing engineering improvements to address weight and efficiency challenges. Advances in battery management systems have increased lifespan and reliability, while new chemistries and recycling methods reduce reliance on rare earth materials and improve sustainability.
Performance and Range Improvements: The average EV range has increased by about 200% over the past decade, with many new models offering 400–700 km (250–435 miles) per charge, especially in medium and large vehicle segments. Enhanced regenerative braking systems now recover more energy during deceleration, extending range and improving overall efficiency.
Charging Innovations: Modern EVs and infrastructure support charging speeds that can replenish 80% of battery capacity in 20–30 minutes, with some premium models achieving even faster times using 800-volt architectures, down to 5 minutes. Inductive charging systems are being piloted, enabling cable-free charging at home, in parking lots, or even at traffic lights, promising greater convenience in the near future. Vehicle-to-grid and vehicle-to-home technologies allow EVs to supply power back to the grid or home, turning cars into mobile energy storage units and supporting grid stability.
Powertrain and Energy Management: Next-generation electric drive units (e.g., Magna’s 800-V eDrive) deliver higher efficiency (up to 93%), better power-to-weight ratios, and reduced reliance on rare earth materials, further boosting performance and sustainability. Modeling and simulation tools optimize thermal management and energy consumption, enabling real-time adjustments to maximize efficiency and range. Industry-wide efforts are underway to create unified standards for EV power management, improving interoperability and energy savings across different vehicle platforms.
Before the current price war, over 65% of EVs sold in China were cheaper than the average ICE equivalent. Nearly half of all new cars sold in China in 2024 were electric. China’s ability to produce affordable, high-quality EVs has begun to impact global markets, with Chinese brands expanding aggressively into Asia, Europe, and emerging markets.
BTW, EV sales in the U.S. grew 11.4% YoY in Q1’25. Total sales were up 6.4%.
The share of new EVs sold in the US in Q1 2025 rose to 9.83% of total new vehicles sold, up from a share of 9.26% in Q4 2024, and up from a share of 7.9% in Q1 2024, according to Experian’s quarterly report today. To be clear, these are battery-electric EVs without an internal combustion engine and do not include hybrids and plug-in hybrids. (Wolfstreet.com)
Is the Immigration Crackdown Already Showing Up in the Labor Market? There are hints that the number of migrants in the U.S. labor force is declining. It will take time, though, for the full effects to show up.
Employment growth in industries that rely heavily on unauthorized workers has slowed. There has been a large decline in the foreign-born labor force since March. And recent immigrants appear more reluctant to take part in the Labor Department’s monthly survey of households. (…)
Data released alongside Friday’s jobs report showed that the number of foreign-born people either working or looking for work fell by about one million from March to May. That was the biggest two-month decline in the foreign-born labor force since the early days of the pandemic. Some economists pointed to that decline as an indication that more unauthorized workers are exiting the labor force.
That data is extremely volatile, though, and not adjusted for seasonal swings, which are severe in sectors such as farming. The ratios of both foreign- and native-born employed people to population have behaved similarly in the past year.
Immigration has long been an important source of labor in the U.S., particularly in recent years as the number of unauthorized immigrants flowing across the border surged. But the number of people coming into the country began falling in the later part of last year after the Biden administration tightened up the border. And it has fallen precipitously since President Trump came back into office, while raids on workplaces have made some immigrants fearful of showing up for work. (…)
It might not take long for the immigration crackdown to show up more clearly. The Labor Department’s employer and household surveys are based on midmonth readings. That means that the May jobs report that was released last week didn’t include the dialing up of immigration enforcement that came in late May after top White House aide Stephen Miller told Immigration and Customs Enforcement to “just go out there and arrest illegal aliens.”
The June jobs figures, due July 3, will be based on the pay period and week that includes the 12th of this month—that is, Thursday.
Goldman Sachs issued another great report on immigration yesterday:
Examining the Impact of High-Skilled Immigrants on the US Economy
- The number of approved H-1B visas and of international students enrolled at US universities have both climbed notably in recent decades, contributing to the steady increase in the number of college-educated immigrant workers in the US. In this Analyst, we zoom in on high-skilled immigrants, defined as those who arrived in the US for college and stayed to work and those who arrived in the US after having earned a college degree elsewhere.
- Despite accounting for only about 5% of the US labor force, high-skilled immigrants make up a much larger share of workers in many industries that require advanced education and specialized experience, such as information services, computer and semiconductor design, scientific research, and pharmaceuticals.
- High-skilled immigrants have made large contributions to innovation, business formation, and growth in the US economy. These immigrants account for 13% of the STEM workforce, represent 18% of doctoral degree holders in the US, hold 29% of US Nobel Prizes, and have led 30% of US patents in industries that are important for economic competitiveness and national security. Estimates from the academic research suggest that this group has founded 20% of venture capital-backed startups, patents at double the rate of native-born inventors, and is responsible for 25% of the aggregate economic value created by patents in publicly traded and private companies and 36% of aggregate innovation, as measured by patent citations.
- Estimates from academic literature suggest that each additional high-skilled immigrant in the US lowers the federal budget deficit by roughly $75k over ten years. Combining these estimates with our analysis of data from the American Community Survey, we estimate that high-skilled immigrants reduce the federal deficit by roughly $40-50bn in the decade after arrival, and that the entire stock of high-skilled immigrants in the US puts around $50-80bn in downward pressure on the deficit per year.
- Research on spillover effects on innovation among natives reaches somewhat more of a consensus and generally suggests positive externalities from skilled immigrants on patenting activity by native inventors.
AI CORNER
Navigating Coal Plant Retirements Amid Rising Power Demand Challenges
Factset follows up to my June 9 post about prospective Energy Bottlenecks in which I showed that electricity generation in the USA has been essentially flat for 15 years at roughly 4,200twh. The 2024 number is only 3% above 2018 and 4.5% above 2010. That’s a +0.3% CAGR since 2010 and +0.5% since 2018.
Net electricity generation in the United States from 1990 to 2024
Rising renewables and, mainly, natural gas production have simply offset the declining use of coal. Trump policies will likely slow renewables and 80% of natural gas pipeline expansion is tied to LNG export projects.
Importantly, about 78% of total U.S. dry natural gas production comes from shale formations. Indeed, much of the natural gas produced in the U.S. is a byproduct of oil extraction in shale plays.
Due to tariffs and rising costs for steel and equipment, the average breakeven price for new shale wells has risen. Many producers now require oil prices above $65 per barrel to justify new drilling, and some executives suggest $70/bbl is the new threshold for aggressive expansion. With current WTI prices hovering around $60–$63 per barrel, margins are tight and drilling activity is being curtailed.
Tariffs on steel (50%) and other imported equipment have raised well costs by more than 10%, further squeezing profitability and leading to fewer wells being drilled for the same investment.
It’s easy to say “Drill, baby, drill” but things are not so simple, are they?
Energy has become a key ingredient in AI investments, themselves key factors in overall economic growth. The US economy is clearly facing energy bottlenecks ahead while China has been aggressively investing in its energy production infrastructure while reducing dependance on coal.
Here`s Factset on the outlook for coal which now produces 15% of all US electricity generation.
With load forecasts projecting a sizable increase in power demand from sources like AI data centers, grid operators need to ensure they can meet this future load. One way to mitigate these concerns surrounding rising load would be to delay or cancel the retirements of coal-fired power plants. In this Insight, we’ll explore what could be driving these plants to retire, how much coal generation is currently scheduled to retire, and what facilities are going to stay online.
What’s going on with coal?
There are several factors that are contributing to the amount of coal plant retirements occurring over the next several years. However, two EPA standards scheduled to take effect over the next seven years may be causing some coal-fired facilities to retire earlier than they otherwise would.
First, there are new wastewater standards that coal-fired plants must meet to continue operating in 2029 and beyond. Currently, there are 49 GW of coal-fired capacity scheduled to retire before this standard comes into effect, which represents 26.5% of the currently operational facilities.
The second standard would force all coal plants operating in 2032 and beyond to either co-fire 40% with natural gas or reduce emissions by 90% by installing carbon capture technology. An additional 22.1 GW of coal capacity is scheduled to retire before this standard takes effect.
These standards may not be upheld, but any cancellation, delay, or relaxation of them may push out coal retirement dates. Doing this would keep much-needed generation for meeting growing load, especially when combined with new renewables, storage, and natural gas-fired generators.
On average, coal provided 80.7 GW to the grid on an hourly basis in 2024. Based on currently scheduled retirements and 2024 generation levels, this drops to 52.3 GW in 2032 after both EPA standards would have taken effect.
These retirements would have an even larger impact during peak months. Compared to July 2024, hourly coal generation could drop by 38.8 GW by July 2032, potentially making it more difficult to keep up with peak demand forecasts.
(…) As we look ahead, the EPA standards may be both too expensive for coal plants to consider adopting and causing early retirements.
However, if the EPA standards are relaxed to keep coal plants online to meet rising demand, the question remains whether coal plants currently scheduled to retire will be economic enough to keep open, regardless of circumstance.
S&P Global:
“We believe coal producers are already working to match current production with growing demand from increased large industrial loads expected moving into 2025 and 2026,” Senior Analyst at S&P Global Commodity Insights Wendy Schallom said in the Commodity Insights November US Coal Market Forecast. “While it doesn’t change the long-term outlook for thermal coal demand and ultimately supply in the US, it does extend the transition period as US coal generators push back on previously announced retirement dates and the competition between coal and natural gas continues.”
In addition to electricity demand growth from data centers and other sources, higher natural gas prices are expected to support US domestic thermal coal demand in 2025. Commodity Insights projects that natural gas prices will increase to $4.26/MMBtu in 2025, and $6.29/MMBtu in 2026, contributing to an increase in thermal coal consumption of about 40 million st per year (projections based on normal weather).