Note: I am travelling for another week. Postings may be fewer and shorter.

EARNINGS WATCH

From LSEG IBES:

436 companies in the S&P 500 Index have reported earnings for Q2 2026. Of these companies, 85.1% reported earnings above analyst expectations and 11.5% reported earnings below analyst expectations. In a typical quarter (since 1994), 67% of companies beat estimates and 20% miss estimates. Over the past four quarters, 80% of companies beat the estimates and 16% missed estimates.

In aggregate, companies are reporting earnings that are 8.4% above estimates, which compares to a long-term (since 1994) average surprise factor of 4.4% and the average surprise factor over the prior four quarters of 7.5%.

Of these companies, 76.4% reported revenue above analyst expectations and 23.6% reported revenue below analyst expectations. In a typical quarter (since 2002), 63% of companies beat estimates and 37% miss estimates. Over the past four quarters, 73% of companies beat the estimates and 27% missed estimates.

In aggregate, companies are reporting revenues that are 3.7% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.3% and the average surprise factor over the prior four quarters of 2.2%.

The estimated earnings growth rate for the S&P 500 for 26Q2 is 51.1%. If the energy sector is excluded, the growth rate declines to 47.2%.

The estimated revenue growth rate for the S&P 500 for 26Q2 is 15.2%. If the energy sector is excluded, the growth rate declines to 13%.

The estimated earnings growth rate for the S&P 500 for 26Q3 is 28.6%. If the energy sector is excluded, the growth rate declines to 25.6%.

Factset:

The unusually high earnings surprise percentage for the index is mainly due to the unusually large positive EPS surprises reported by Alphabet ($9.11 vs. $2.88) and Amazon.com ($5.75 vs. $1.82) for Q2. The (GAAP) EPS actual for Alphabet for Q2 included a gain of $98 billion in other income primarily due to net unrealized gains on equity securities, while the (GAAP) EPS actual for Amazon.com for Q2 included a gain of $53.4 billion in other income primarily due to investments in Anthropic.

Excluding Alphabet and Amazon.com, the earnings surprise percentage for the S&P 500 for Q2 2026 would fall to 10.9% from 29.2%. However, this surprise percentage is still above the 5-year and 10-year averages.

Excluding Alphabet and Amazon.com, the blended earnings growth rate for the S&P 500 for Q2 2026 would fall to 32.0% from 50.4%.

US EMPLOYMENT

The main employment facts by Goldman Sachs:

Nonfarm payrolls decreased by 23k in July, well below expectations [+80k]. Payroll growth was revised down by 37k to 20k in June and by 66k to 63k in May.

The three-month average of payroll growth stands at 20k (vs. 111k prior to today’s report), and our estimate of the underlying pace of job growth based on the payroll and household surveys now stands at 5k (vs. 74k prior to today’s report).

Payrolls declined 40k in leisure and hospitality and 53k in government, the latter driven by a 50k decline in local government education that likely reflects a negative contribution from seasonal patterns around the school summer break not fully captured by seasonal adjustment.

Elsewhere, payroll growth was strongest in the healthcare (+23k) and construction (+22k) sectors and weakest in the retail trade (-19k) and financial activities (-14k) sectors.

The payrolls diffusion index declined 1.4pt to 51.8 on a one-month basis and 6.6pt to 50.8 on a three-month basis. Today’s report continues the pattern of weak July employment reports and negative revisions for the prior months observed in each of the last three years.

The unemployment rate declined by 10bp to 4.09%, reflecting an 87k decline in household employment and a 264k decline in the size of the labor force.

The labor force participation rate has now declined by 0.7pp since January, when the benchmark revisions incorporated Census data with a long lag that resulted in a separate 0.3pp drop in the participation rate.

Average hourly earnings increased 0.05% month over month in July, well below expectations. The year-over-year rate declined 0.26pp to 3.15%. Wages for production and non-supervisory workers increased by 0.12% month over month or 3.22% from a year ago.

Our wage tracker stands at 2.9% annualized and 3.6% year-over-year in Q2, and our wage survey leading indicator stood at 3.7% in July.

I am no big fan of such graphical simplifications but I was struck by the change in trends since January. More important is the total disappearance of the already weak employment component since May and the sharp slowdown in wage growth from an already low 2.6% annualized in Q2 to +0.6% a.r. in July.

Recall that the BLS originally reported May job growth at a then surprising +172k, revised to +129k in June and now to +63k. June payrolls were initially reported at +57k. Now +20k.

What everybody thought was a labor market revival has turned into a pretty sloppy growth rate per Goldman Sachs reckoning.

But amid all these incredible revisions, is employment really slowing?

On a quarterly basis, jobs were declining 30k per month in Q4’25. They rose 43k/m in Q1’26 and 96k/m in Q2.

The monthly trend, however, gives a very different picture:

The semi-annual data eliminates the volatility and the illusion of a recovery, particularly after July’s –23k (also subject to revisions).

Private employment growth, slower than total employment prior to 2026, is now somewhat firmer at +60k/m in Q2 but only rose 30k in each of June and July.

KKR’s reaction explains the market’s reaction Friday:

We think the economy is on much firmer footing than this report indicates. ISM Manufacturing numbers (strong leading indicator of industrial economy) accelerated to the strongest level since 2022 last month. Unemployment claims remain near the low end of the historic range. GDP for 2Q showed broad strength across consumer spending (both goods & services) and business investment (both AI capex and non-AI).

Also important to remember is that we are in a productivity-led cycle, driven by output per worker, not simply a surging workforce. Softer job growth trends do not particularly undermine this narrative.

More importantly, the composition of growth continues to evolve. In past cycles, even early in this expansion, consumer spending did most of the heavy lifting. Today, however, capital investment is increasingly becoming the marginal driver of growth, with Construction and Manufacturing outperforming while portions of the traditional consumer economy, including Retail and Leisure & Hospitality, soften at the margin.

We suspect the AI buildout is driving some of the strength on the Goods side. Meanwhile, softer Services trends look like further evidence of the unusually robust productivity surge that has played out for services this cycle.

This is a market friendly report because it tones down the narrative that the Fed is well behind the curve. (…) we are seeing little urgency for a September hike: we have now had two months of jobs on the softer side and also saw a notable moderation in core inflation last month.

Importantly, consistent with our Divergence Conundrum thesis, the Chair will be hesitant to tighten financial conditions via rate increases on the segment of the American population who are clearly struggling from rising input costs as well as the more rate-sensitive parts of the U.S. economy.

All true, although

• jobs are no longer contributing to labor income growth which is bound to weaken from its current 4.0% YoY to 3.0% per Goldman’s wage tracker.
• PCE inflation averaged 3.8% since March.
• “the segment of the population who are clearly struggling” is thus expanding rapidly, threatening to offset the AI economy.

Consumer expenditures have significantly deviated from labor income since February while inflation accelerated. How sustainable?

• Trump Hints US Will Let Economic Pressure on Iran Do the Work

Iran said it will let economic pressure on the US do the work.

Meanwhile, North of the current border:

Canada Adds 75,100 Jobs, Unemployment Rate Hits Two-Year Low

The Canadian economy added a surprise 75,100 jobs last month while the unemployment rate hit its lowest level in two years — the latest evidence the economy is on a recovery path.

The jobless rate edged down to 6.4% in July from 6.5% the previous month, Statistics Canada reported on Friday. (…)

Employment increased by 181,100 between May and July, marking the biggest three-month employment gain since before US President Donald Trump began imposing tariffs on Canadian goods.

The job growth over the three-month period was also driven by full-time work and concentrated among private sector employees and self-employed workers. Hours worked also rose 0.6%.

The stronger-than-expected labor data suggests momentum in the Canadian economy is extending into the third quarter. Recent economic data has pointed to a strong rebound in the second quarter, after a year of economic stagnation brought on by US tariffs.

Preliminary data previously released from the agency showed the economy tracking an annualized 3.4% growth between April and June, and recent international trade figures point to further upside. (…)

Average hourly wages for full-time permanent employees grew by 3% on an annual basis, down from 3.7% yearly growth the previous month.

Pretty amazing!

China Unleashes $28 Trillion Capital Markets to Challenge US in AI The strategy marks a break from Beijing’s reliance on subsidies and state funding.

(…) Access to capital has long been one of America’s biggest advantages in technology. Now Beijing is trying to close that gap, as artificial intelligence — perhaps the most capital-intensive industrial undertaking in modern history — emerges as the next engine of economic growth and military advantage.

Chinese tech firms raised about $217 billion through initial public offerings and bond sales over the past two years, according to data compiled by Bloomberg. For every $1 they secured, US peers raised more than $6, led by companies including Amazon.com Inc. and Alphabet Inc.

It represents a change in how Beijing finances its strategic industries. China has rarely used capital markets as a major industrial policy tool, relying instead on subsidies, tax incentives and state investment. The shift opens access to the $26 trillion held by citizens — the world’s largest pool of household savings — while Chinese companies also enjoy some of the cheapest funding globally. (…)

Since 2025, regulators have built a coordinated policy framework to support tech companies throughout their development, combining bank lending, bond issuance, capital markets and long-term investment. The People’s Bank of China, China Securities Regulatory Commission and Ministry of Finance are among the agencies behind the effort. (…)

Beijing sees strong markets as essential to its tech ambitions. Household savings will only flow into strategic industries if investors believe the bets will pay off. So far, it appears they do: the chip-heavy STAR 50 Index hit a record high in June and is up 30% this year, compared with 1.4% for the CSI 300.

More tech listings are on the way. Z.AI Co. and MiniMax Group Inc. are pursuing A-share listings after their Hong Kong debuts. Moonshot AI — whose Kimi K3 model sent ripples through Silicon Valley — told investors it is preparing to go public in as early as six months, while DeepSeek has begun laying the groundwork for its own IPO. (…)

The bond market tells a similar story. Authorities have promoted green and tech-focused bonds, urged banks and investors to back sci-tech issuers, and opened the market to more first-time borrowers.

Chinese tech companies have sold at least $38 billion of onshore and offshore bonds this year, the most for the same period since 2016. (…)

One edge China holds over the US is access to some of the world’s cheapest funding.

Major Chinese tech companies are borrowing at an average bond coupon of 1.9% this year, more than 300 basis points below their US peers, according to data compiled by Bloomberg — the widest gap since at least 2015. The spread also reflects China’s much lower interest rates and inflation. (…)

Equity investors are following Beijing’s lead. Money has flowed out of property, consumer and other traditional growth sectors into chipmakers and advanced manufacturers. Today, tech’s weighting in the CSI 300 has grown to rival — and at times surpass — that of financials. (…)

China may ultimately require less money than the US to achieve similar outcomes. Companies such as DeepSeek and Moonshot said they can build competitive models at a fraction of the cost claimed by many Western rivals.

UBS Group AG estimates the training costs for China’s models are less than 10% of those of global leaders such as OpenAI and Anthropic PBC, while the average API price for major China models is below 20% of comparable global peers.

Those efficiencies could prove to be one of China’s biggest advantages. Instead of trying to out-innovate the US, Beijing may be able to narrow the gap by industrializing and commercializing AI at scale, drawing on its manufacturing base, deep supply chains and engineering talent. (…)

• China Humanoid Makers Hold 97% of Global Shipments, Report Says

China’s humanoid robot makers commanded more than 97% of global shipments in the first half of 2026, according to new industry data affirming the country’s early lead against US rivals in the burgeoning field.

Global humanoid robot shipments totaled roughly 19,100 units in the first half of 2026, more than triple the 5,100 units shipped in the same period last year, according to data from Smart Analytics Global. The California-based research firm expects shipments to rise to around 60,000 units this year and reach half a million by 2030.

Shanghai-based Agibot overtook Hangzhou-based Unitree Robotics to claim the top spot in market share, capturing 44% of global shipments with 8,400 units in the six-month period, compared with Unitree’s 5,900 units. Their volumes dwarf shipments from top US companies such as Tesla Inc., Figure AI Inc. and Agility Robotics Inc., underscoring the pace of development within China.

In late July, the US banned imports of new Chinese humanoid and quadruped robots, along with certain components, citing national security and cybersecurity risks to critical US artificial intelligence infrastructure. (…)

An important shift is also underway in how the robots are being used.

“Industrial and commercial applications accounted for more than 70% of shipments, up from approximately 50% a year earlier,” said Linda Sui, founder and principal researcher at SAG. Regulatory uncertainty and geopolitical risks could shape the industry’s next phase of growth, Sui added.

THE BOILING CAULDRON

The Saudis Spurn the Abraham Accords A defense pact in Mecca with Turkey and Pakistan shows a different outlook.

A new regional bloc has been forming in the greater Middle East, but it isn’t the Saudi-Israeli-Emirati alliance the U.S. wanted. Call it the Mecca Accords, a joint defense agreement signed by Saudi Arabia, Turkey and Pakistan in the Islamic holy city on Friday. The three Sunni powers agreed that an armed attack on any of them will be viewed as an attack on all of them.

The three are officially U.S. allies, but the Abraham Accords this is not. The Saudis, in their choice of partners, pursue a more accommodationist balance with Iran. Turkey and Pakistan are also more ambivalent, to put it lightly, about counterterrorism.

Turkish President Recep Tayyip Erdogan hosts and praises Hamas as “holy warriors,” while the Pakistani relationship with the Taliban and al Qaeda can at best be called a double game. Egypt, which also attended the summit, notably stayed out of the pact.

The new arrangement may be toothless. Does anyone believe the Turks and Saudis will arrive guns blazing the next time India and Pakistan exchange strikes? Riyadh previously forged a mutual-defense pact with Islamabad in 2025, and in the present Iran war Pakistan reportedly transferred some troops and an air-defense battery to Saudi Arabia. It was a political signal more than a fighting force.

That may be the point. This isn’t NATO’s Article Five, and when Iranian missiles are fired on Saudi Arabia, the call still goes to Washington, not Ankara, Islamabad or even Beijing. That is what matters most.

But defense alliances can have other uses. For Turkey the driving goal is to project its influence across the region. Its dominant presence in Syria, plus growing military deployments in Northern Cyprus, Iraq, Qatar, Libya and Somalia, make that clear. Cementing ties to the other capitals adds diplomatic heft alongside prospective arms sales.

Pakistan has emerged as a mediator between the U.S. and Iran and sees the benefit of life at the center of things. It also has a core economic interest in tamping conflict with Iran to keep oil and gas flowing. Regional coordination is one way to pursue that.

Saudi Arabia diversifies its partners and signals less confidence in Washington, its protector, amid the Iran war. The Saudis spend some $80 billion a year on defense—far more than the Israelis and dwarfing the Iranians—but imported hardware is no substitute for combat experience and the will to fight. The pact with Turkey and Pakistan may be complementary in that regard, but the Saudis have yet to demonstrate the ability to lead a regional order.

There is also a nuclear subtext. Turkey’s joining the Saudi-Pakistani relationship, which has a murky nuclear-weapons component, should raise alarms. In February the Turkish Foreign Minister responded with a long silence and a smile when asked on live TV if Turkey should pursue the bomb. All of this underscores the need for Congress to insist the Saudi nuclear deal exclude domestic enrichment of uranium.

When a superpower flails about, regional powers begin to make arrangements for themselves. This can be good—locals should carry more of the load—or bad, when allies accommodate our enemies and interests counter to our own. This looks like the latter.

While the 3 parties to the Mecca Accords emphasize its defensive and balancing nature (vs both Iran and Israel), actually pouring cold water in the cauldron, the WSJ Editorial Board, a strong supporter of “finishing the job”  with Iran and a loyal advocate of Israel, minimizes its potential effect.

Toothless or not,

• The Mecca Accords raise the collective diplomatic and military weight of three major Sunni-majority states: Saudi financial capacity and strategic location, Türkiye’s large NATO-linked military and defence-industrial base, and Pakistan’s experienced armed forces and nuclear deterrent.
• It confirms that the “Gulf partners” (all GCCs in fact) now have serious doubts about the reliability or availability of the US security guarantees.
• For Israel, it complicates the strategic environment by connecting Saudi Arabia more visibly with Türkiye and Pakistan. Two weeks ago, Israeli Defence Minister Israel Katz directly warned President Recep Tayyip Erdoğan: “Don’t play with us” and that Erdoğan should not put Türkiye “in the position that Iran put itself in.” That was after he had called Erdogan a “paper tiger” last April.

From the Jerusalem Post on July 30:

(…) In its early days, Israel’s leadership preferred war as a last resort. Today, after more than 1,000 days of war, Israeli rhetoric generally argues for wars on more fronts. This is usually accompanied by the belief that Israel is now the strongest military in the region and, with US support, can take on more threats. (…)

Many countries in the region have noticed the Israeli rhetoric. ANHA news, a Kurdish outlet, reported on Tuesday that “Energy and Infrastructure Minister Eli Cohen said [that] Israel would be compelled to establish military bases inside Syria if Turkey proceeds with plans to set up its own military bases on Syrian territory.”

It added, “Cohen stressed that Tel Aviv [Jerusalem] would not stand idly by in the face of any Turkish military deployment in neighboring Syria, asserting that Israel would respond in kind to safeguard its national security and protect its strategic interests in the region.”

Last week, Daily Sabah, a pro-government Turkish outlet, noted: “Diaspora Affairs Minister Amichai Chikli said on Wednesday that Israel should prepare for the possibility of a future confrontation with Turkey, arguing that direct military contact between the two countries was ‘not an impossible scenario.’”

It went on to report that, “speaking at a conference in west Jerusalem, Chikli said a direct encounter between the Israeli and Turkish militaries could occur at sea, adding that such a scenario could happen ‘even tomorrow morning.’”

A separate comment from Bennett at the Conference of Presidents of Major American Jewish Organizations in February also was reported at The Media Line. The report said that he spoke about how “Turkey is the new Iran.” (…)

Much of Israel’s aggressive rhetoric was before the “new Iran” proved its resilience against a toothful America/Israel coalition.

We are witnessing in real time the rapid decline of American influence in this crucial part of the world.

“Just a little excursion” he said.

SELF DEFENSE

ICE will not reveal body-camera footage unless in agency’s ‘best interests’

(…) The policy says ICE will promptly release video of shootings and other encounters in which its agents cause death or serious injury only after determining “it is in the best interests of the agency” to do so.

It requires officers to activate cameras during routine enforcement activities, including while making arrests, executing search warrants and responding to emergencies.

After shootings or other serious confrontations, a committee that includes top ICE officials and lawyers will review footage and recommend whether to release it promptly, according to the February 2025 policy.

If the ICE director finds that “specific and compelling circumstances” justify withholding the video, they have the authority to block or indefinitely delay the release, the policy says. (…)

Note: I am travelling for another 2 weeks. Postings may be fewer and shorter.

PMI SERVICES

S&P Global: Business optimism strengthens to eight-monthhigh as activity and sales rise solidly

The headline S&P Global US Services PMI® Business Activity Index registered 54.6 in July, up from 51.2 in June and above the earlier ‘flash’ estimate of 53.6. The final reading was the highest for nine months and signaled a solid expansion in activity.

Panelists commonly linked the improvement in output to stronger new order inflows. Latest survey data showed the most marked rise in new work since November 2025. Some firms noted a temporary boost from major events, including the FIFA World Cup and expanded US Independence Day events.

The expansion in sales was primarily domestically driven, as export trade deteriorated more sharply than in June. The reduction was amongst the steepest since late 2022 and was often attributed to higher tariffs and the war in the Middle East.

Confidence in the outlook, as measured by the Future Activity Index, strengthened from June. Business expansion plans and new product launches were cited as key supports to the outlook, while firms also hoped for improved domestic and geopolitical conditions. Optimism reached its highest level since November 2025.

Higher orders and a more positive outlook encouraged firms to raise staffing numbers at the start of the third quarter. Although only marginal, the rate of job creation was the strongest for eight months. Firms also reported rising capacity pressures, as backlogs of work increased at the sharpest rate since February.

Latest prices data signaled a continuation of above-trend input cost inflation, with overall costs rising at the fastest pace since May 2025. Tariffs, together with higher raw material and fuel costs, were widely cited as key drivers of increased operating expenses.

Where possible, firms sought to pass higher costs on to clients through increased selling prices. Charge inflation remained above its long-run trend and accelerated to a 14-month high in July.

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

“The final July PMI has come in stronger than the earlier flash estimate, signaling an encouraging acceleration in economic growth at the start of the third quarter. The PMI points to GDP rising at an annualized rate of 2.3%, following a 1.5% increase indicated for the second quarter. Business optimism has meanwhile climbed to its highest since last November.

“Some caution is needed in interpreting these improvements, as the stronger performance partly reflected temporary factors. We note that the biggest improvement in demand in July was reported among consumer-facing service providers, spending on which surged at a rate not seen for over four years linked to the FIFA World Cup and US Independence Day events.

“More importantly, businesses benefited in early July from a tailwind of reduced geopolitical uncertainty and lower oil prices. With hostilities in the Gulf escalating as the month progressed, the geopolitical environment is now likely once again acting more as a headwind to growth while exacerbating already-elevated price pressures.”

• ISM Services Slightly Below Expectations (Goldman Sachs)

The ISM services index edged up by 0.1pt to 54.1 in July, slightly below expectations for a larger increase. The composition of the report was mixed, with increases in the business activity (+3.7pt to 59.1) and new orders (+2.1pt to 57.2) components but a decline in the employment component (-3.8pt to 47.4) that reversed its large increase in June.

The new export orders index (+1.6pt to 52.0) and the imports index (+2.4pt to 51.8) both increased.

The prices paid measure increased by 2.6pt to 70.3, likely reflecting the increase in energy prices following the re-escalation of the Iran conflict and roughly returning to the levels reached between March and May.

The press release characterized overall services activity as “resilient,” and noted that the World Cup continued to contribute to increased business activity and new orders as in June. It also highlighted that “tariff impacts and the Middle East conflict continued to be mentioned by respondents, but much less frequently than in prior reports,” but noted that concerns still remain around the impact of the recent run-up in oil prices on input costs.

Canada: Service sector continues to falter

Latest PMI data point to another month of underwhelming service sector performance during July. This was in line with a challenging business climate as tariffs and geopolitics continue to dominate both near-term activity and the outlook for the coming year.

Both output and new orders fell again, albeit to lesser degrees, whilst confidence regarding the future sank to the lowest of 2026 so far.

Adding to the challenging environment was the continuation of steeply rising input costs, again linked to tariffs and the crisis in the Middle East pushing up energy and fuel expenses. Allied with increased staffing
expenses, overall input price inflation was amongst the steepest recorded since the fall of 2022. Selling prices were raised as a result, despite the subdued demand environment, which adds to some risks to the broader growth and inflation outlook.

 

Productivity Growth Above Expectations; Unit Labor Costs Below Expectations (GS)

Nonfarm productivity increased above expectations in Q2 (+1.4%, quarter-over-quarter annualized), and the year-over-year rate declined by 0.7pp to +2.2%.

Since 2019Q4, labor productivity has grown at an annualized rate of 2.1%, well above the 1.3% annualized rate of the proceeding decade.

We expect labor productivity growth to average around 2.3% over 2026-2030.

Unit labor costs—compensation divided by output—increased by less than expected in Q2 (+1.3%, quarter-over-quarter annualized), and the year-on-year rate increased by 1.0pp to +1.4%. Compensation per hour accelerated to an annualized pace of 2.7% in Q2 (vs. 2.1% in Q1), and the year-on-year rate increased by 0.4pp to 3.7%.

Our wage tracker stands at 2.9% annualized in Q2 (vs. 2.9% in Q1) and 3.6% year-over-year (vs. 3.5% in Q1), below the pace we estimate is consistent with 2% inflation.

CONSUMER WATCH

These Middle America brands are struggling in the street fight over consumers

Several major brands that target working-class and middle-income Americans are struggling to attract customers.

While much of the market’s attention is focused on the booming AI economy, there’s a street fight going on among some of the biggest brands for the wallets of value-conscious consumers.

Signs of trouble are emerging for multiple major players:

• Papa John’s shares plummeted Thursday after the chain reported an 8.3% decline in sales at its North American restaurants open at least a year, telling analysts the company must meet the customer “where they are in this challenged environment.”
• Popeyes Louisiana Kitchen recorded a 5.2% drop in comparable sales at its U.S. locations, and vowed going forward to focus on offering “consistent, easy-to-understand value.”
• Budget gym chain Planet Fitness posted a 1.7% slump in the same metric at its clubs, and talked about “reinforcing affordability” to reignite member growth.
• Six Flags Entertainment reported a 4% drop in same-park attendance at its amusement parks, though it argued it sees opportunities to expand with consumers “whatever side of the K they might be coming from.”

While consumer spending has been strong overall in recent months, Mastercard chief business officer Sachin Mehra noted on an earnings call last week that a portion of it “has come on account of higher fuel prices” and the one-time effect of the World Cup.

Some companies that target low- and middle-income consumers are doing just fine.

• Burger King — which, like Popeyes, is owned by Restaurant Brands International — enjoyed a buoyant quarter with an 8.5% increase in U.S. comparable sales.
• The chain’s marketing and product investments are paying off, helping it gain momentum against arch-rival McDonald’s, which posted a disappointing 0.8% increase in U.S. comparable sales as it failed to execute on its value strategy.
• Keurig Dr. Pepper CEO Timothy Cofer said Thursday on an earnings call that consumers are “responding” to the company’s “compelling value proposition.”

Consumers haven’t stopped spending. They’re just becoming much more selective about where they do it.

Host cities got an economic assist from the World Cup

To get a real sense of the incremental boost to spending that local host cities enjoyed over the tournament it’s important to compare them to cities that did not host games. Exhibit 4 looks specifically at brick and mortar (B&M) restaurant and bar spending over the tournament compared to the period before. It confirms that host cities saw spending growth in this area strengthen relative to the period before the tournament, while this trend was not generally seen elsewhere.

Notice the slowdown in “all else” cities since mid-June, from 4.5% YoY to 3.1%, before inflation.

Thank you AI!

• 92% of the economy is growing 1% 8% of the economy is growing 14%.

@EPBResearch

THE BOILING CAULDRON

Houthi strikes kill dozens in Yemen, officials say, as Saudi Arabia warns of further attacks Latest attacks by Iran-aligned Houthis spark concerns that Middle East crisis is intensifying

Attacks by the Iran-aligned Houthis on a military camp in Yemen and in Saudi Arabia have sparked concerns that the Middle East crisis will continue to spiral.

Yemen is being increasingly drawn into the US-Israeli war with Iran, with the Houthi rebels stepping up attacks against both government forces inside the country and neighbouring Saudi Arabia, a key US ally and supporter of the internationally recognised Yemeni government.

On Thursday, at least 30 Yemeni government troops were killed in Houthi attacks on military ⁠camps in Yemen, government sources said, warning the death toll could rise. Some reports have put the death toll as high as 58. (…)

Yemen’s defence ministry said in a statement only that its armed forces would respond to the attacks “at the appropriate place and time”, while the health minister ordered medical facilities to increase readiness to treat wounded soldiers.

Yemeni sources said recently they believe Saudi Arabia is preparing for a major military offensive against the Houthis by sea and possibly by land in central Yemen, in a move to break their chokehold on Saudi oil exports through the southern Red Sea.

In a separate attack early on Friday, a Saudi official accused the Houthis of indiscriminately shelling civilian areas in Saudi Arabia, injuring 11 civilians, including a four-year-old child. (…)

Saudi Arabia and the Houthis have been vying for control of Yemen for more than a decade but over the past month an uneasy status quo has unravelled, with the Houthis mounting attacks against Saudi Aramco oil facilities.

The Houthi movement, which controls Yemen’s capital Sana’a and much of its Red Sea coastline, declared a naval blockade of Saudi Arabia in the Red Sea last month.

A senior ⁠Saudi official on Thursday said the kingdom was expecting imminent coordinated attacks from the north and ⁠south by Iraqi militias and the Houthis in Yemen under the supervision of Iran’s Islamic Revolutionary Guard Corps. (…)

Recall that at the outset of the conflict in Yemen in 2015, Saudi Arabia and the United Arab Emirates promised the Obama administration that it would be over in six weeks.

Why We Should Fight

In this week’s Foreign Affairs, Kori Schake, who served on the National Security Council and in the U.S. State Department under President George W. Bush, first details how this war was so badly managed before offering a very unlikely way out: Congress.

(…) It seems extremely unlikely that the Trump administration will be chastened by its failure in Iran. Shamelessness has been central to Trump’s business and political success, and his reaction to setbacks is to deny objective facts and construct fantasies of achievement. The rigors of war do not seem to have persuaded him of the need for a more coherent process of policy formulation and assessment; he continues to blurt out his every whim, and a cabinet of sycophants and amplifiers is unlikely to impose discipline on an undisciplined principal.

Nor can the two parts of the government that have apparently provided solid strategic judgments—the CIA and the military—salvage the process. They are advisory bodies, not policy actors, and Trump repudiates or ignores their counsel whenever it conflicts with his claims or preferences.

At the time of this writing, Iran’s government remains unyielding in its demands, the Islamic Revolutionary Guard Corps is still in firm control of the country, and Trump appears unwilling to escalate U.S. military action in a way that would fundamentally alter the dynamic.

For the foreseeable future, the administration will likely continue to carry on sporadic standoff strikes of tactical brilliance and strategic irrelevance and pursue negotiations aimed at restoring a cease-fire—all while hoping, almost surely in vain, that the Iranian regime will collapse or be overthrown. The precise outcome is impossible to predict, but it will almost certainly leave the United States politically and militarily weaker and less trusted as a security partner.

Adherence to the Powell Doctrine could have prevented those losses. It could also help Trump chart a way out of the extended purgatory his conduct of the war has produced. At one extreme, he could use it to justify accepting a loss. Acknowledging the lack of public or international support for and the mounting costs of the war, Trump could camouflage defeat by making the case that he achieved his most important objectives: the practical destruction of Iran’s nuclear program and the significant degradation of its conventional military.

Alternatively, the president could start over and build a plan consistent with the doctrine’s outlines. He could start by recognizing the national security imperative of maintaining freedom of navigation and obtain congressional authorization to use force to restore it in the Strait of Hormuz.

The administration would have to reliably convey to the Iranians that its primary objective is opening the strait and that to achieve that goal, the United States would lift sanctions on Iran and refrain from using force against the country for anything other than its nuclear program. (…)

Left to its own devices, the Trump administration is highly unlikely to put forward such a plan. The only thing that might force it to do so is pressure from Congress.

Wistful appeals to congressional action should be accompanied by the desolate strains of Tchaikovsky’s Pathétique: in Trump’s second term, instead of fulfilling its constitutional obligations, the Republican-controlled Congress has been negligent. It has confirmed dangerously unqualified appointees, passed budget legislation using so-called reconciliation (which requires only a simple majority instead of 60 votes) rather than through regular order, assented to war in the absence of any request for congressional authorization, and allowed the executive branch to divert some appropriated funds while failing to spend others.

There are reasons, however, that Congress may yet assert its authority. The GOP would like to retain control of both houses, and Trump’s foundering policies and staggering corruption are so deeply unpopular that barring a change of course, Republicans are likely to surrender their slim majority in the House of Representatives and could even lose their more comfortable Senate majority.

Some evidence that the party is aware of this reality is apparent in recent votes in which Congress proposed an end to the war in Iran, enacted restrictions on the Defense Department’s ability to withdraw troops from overseas deployments, and forced the White House to withdraw a record number of nominees from consideration for confirmation.

Going forward, Congress could pass resolutions outlining alternative strategies and regularly drag cabinet officials up to Capitol Hill to testify on the conduct of the war. More consequentially, Congress could legislate the redeployment of forces currently assigned to the conflict and reject the removal of forces from Asia or Europe for use in the Iran operation. Such a move would likely be found unconstitutional. But taken together, such actions would increase the political price the president would pay for continuing to wage war in a reckless manner.

Congress’s strongest form of leverage over the executive branch is the power of the purse. On July 21, Hegseth claimed the war had so far cost $37.5 billion—although the defense budgeting expert Elaine McCusker believes the true figure is probably over $50 billion—and the administration has submitted a poorly justified supplemental spending request for an additional $88 billion. Congress should stipulate that it will not authorize any further funding until the administration presents a plan that would pass the Powell Doctrine’s tests.

In his 1995 memoir, My American Journey, Powell wrote: “Many of my generation, the career captains, majors, and lieutenant colonels seasoned in [the Vietnam War], vowed that when our turn came to call the shots, we would not quietly acquiesce in halfhearted warfare for half-baked reasons that the American people could not understand.” That is precisely the kind of warfare that Trump has undertaken. And so far, Congress has quietly acquiesced. It can, however, still change course. A true victory in Iran is unlikely. But a cataclysmic defeat is not yet inevitable.

Congress? That Congress? It’s why the US should not fight, rather.