January Employment: Strong Start Out of the Gate

Nonfarm payrolls rose 130K in January, far exceeding the Bloomberg consensus expectation of 65K and our estimate of 80K. Data over the prior two months were revised modestly lower (-17K). Together, the three-month average pace of job growth improved to 73K, its strongest pace since last February.

 

Today’s release brought more than the usual two-month revisions that come from late survey responses. The annual benchmark revised down the level of payrolls in March 2025 by 862K (-0.5%) marking the largest downward adjustment since 2009.

Data for the “post benchmark” period (i.e., April 2025-December 2025) were also subject to revisions with the update of new seasonal adjustment factors and modifications to the birth-death model. While smaller in magnitude than the annual benchmark, payroll growth in the post-benchmark period is now reported to have increased an average of 13K per month compared to 28K as previously reported.

While revisions show materially weaker job growth for 2025 as a whole, recent monthly data suggest the trend in hiring has firmed since the summer.

Private sector nonfarm payrolls jumped 172K in January, and the three-month average, at 103K, is well ahead of the flat reading registered in last August. Yet, healthcare & social services remains the dominant driver of job growth, having added 124K jobs—the largest monthly change since August 2020. Job growth in other segments continue to struggle, highlighting that job opportunities are not nearly as widespread as today’s headline beat implies. (…)

The unemployment rate fell to 4.3% (4.28% unrounded) in January, as employment rose a solid 528K and unemployment fell 141K. The unemployment rate’s slide over the past few months puts it back at the top end of the range that most Fed officials consider to be consistent with “full employment” and signals that labor demand and supply are better balanced than previously believed.

Like payrolls, however, there are signs of softness under the headline’s surface. Smoothing with a three-month moving average, the number of people who are working part-time for economic reasons (i.e., a suitable full-time job is not available) rose 19% year-over-year in January. Meantime, the average duration of unemployment slipped to 23.9 weeks in January but remains 9% longer than a year ago.

These indicators align with separate measures of labor demand, such as JOLTS and the Conference Board’s labor differential, that point to sluggish labor demand and suggest there are still pockets of the jobs market that are struggling.

Wage growth remains reasonably solid. Average hourly earnings rose 0.4% in January and were up 3.7% year-over-year, unchanged from December. Steady wage growth is a positive for employed households, but the benchmark’s downward revisions to the level of employment meaningfully pared aggregate labor income growth in the first half of 2025 and better aligns the establishment survey with the more comprehensive data on personal income. (…)

Today’s data suggest the labor market is closer to stabilization than rapid deterioration, and that will diminish the case from the doves that more rate cuts are needed, at least imminently.

Jay Powell had warned that the employment numbers were overestimated by about 60k per month. It was more like 80k in 2025.

But Wells Fargo saying that “there are still pockets of the jobs market that are struggling” is also an understatement as this WSJ chart illustrates. Other than health and education, every other sector is struggling.

Parts of the healthcare industry have become increasingly reliant on an immigrant workforce. (…)

Foreign-born workers are particularly concentrated at the upper and lower ends of the skill ladder in healthcare. By 2024, they accounted for less than 15% of the U.S. population but 39% of home health aides, 28% of physicians and 24% of dentists, according to census data aggregated by IPUMS, a population database.

The rise of healthcare and construction jobs—because of the nation’s massive data center build-out—presents a puzzle in the job market: Since President Trump has severely restricted immigration and ramped up deportations, who is filling these jobs now?

Around one-quarter of workers in the construction industry are foreign-born, census data show. But the ratio is much higher in certain construction specialties, with immigrants making up around half of all drywall installers and roofers, 45% of painters, and 39% of general laborers.

Immigration raids are starting to take an economic toll on the construction industry, making workers harder to come by and slowing building projects.

“You just don’t have the access to the labor that you normally have,” said Joe Brusuelas, chief economist at RSM. The labor shortage is pushing up construction costs, making it harder to build badly needed housing. “It’s a hard supply constraint,” he said.

Demand is strong for data centers and high-end hospitality and residential projects, according to John Fish, CEO of Suffolk Construction Company. Hiring, he said, has become more difficult for mechanical, electrical, and plumbing trades because of retirements and immigration policy. “There’s a complete misalignment between demand and supply,” he said.

In the healthcare sector, demand for nurses and nurse practitioners is so strong that healthcare providers have to outbid each other, offering five-figure signing bonuses and generous paid time off, said Sari Gillen, a Houston-based healthcare recruiter at Goodwin Recruiting.

Many job candidates are juggling several offers, and she makes a habit of checking in on them every day to make sure they don’t jump to the competition. “It’s a race to the finish line,” she said.

Healthcare jobs can be labor-intensive and less susceptible to automation than other skilled professions. Demand for healthcare workers is expected to remain strong as the U.S. population ages, although changes to Medicare payment rates pose a risk in the short term, companies say. (…)

The US job market is also K-shaped. The orange line above explains the productivity gains last year.

Meanwhile, the Employment Cost Index for healthcare and construction workers is up 4.1% vs +3.3% (and slowing) for all private employees.

It’s a good thing that some employees are getting real wage increases because the US consumer sector is now essentially running on wage gains to sustain spending. Hopefully, January’s blowout jobs won’t be revised down too much. Virtually all monthly jobs data were revised lower in 2025.

Speaking of healthcare, how healthy is this?

Greg Ip:

Declining labor share is sometimes attributed to businesses underpaying workers. In fact, it is more due to a shift in the sorts of businesses that dominate the economy. Today’s fastest-growing “superstar” companies pay well, but don’t have many workers. In the past three years Google parent Alphabet’s revenue has grown 43%, while head count has remained flat. Amazon is a major employer because of its fulfillment centers, but even it is eliminating jobs.

In such companies, the line between capital and labor blurs. Employees who design the technology are a form of human capital, and are compensated in stock to reflect that. Some corporate acquisitions dubbed “acquihires” are aimed primarily at talent, such as when Meta Platforms paid $14 billion for a stake in Scale AI to nab founder Alexandr Wang.

Since the end of 2019, just before the pandemic, workers have basically just kept up. After inflation, average hourly wages are up 3%. For workers in aggregate, total compensation is up 8%. Meanwhile, profits have climbed 43%.

Last year was decent for wages, but even better for profits. Last week’s blowout earnings for big tech helped lift profit margins for the S&P 500 to their highest since at least 2009, according to FactSet. Multiply rising earnings by a higher ratio of share price to earnings, and you get a levitating stock market.

Households’ stock wealth is now equal to almost 300% of their annual disposable income, compared with 200% in 2019. At such levels, wealth starts to rival wages as the driver of consumption, at least for the affluent households who own most stocks.

Doug Peta, a strategist with BCA Research, estimates that a 10% stock return, including dividends, taxed at the highest marginal rate, boosts spending capacity as much as an 18% rise in income. No wonder tepid job and income growth aren’t holding back the economy. (…)

Trump Privately Weighs Quitting USMCA Trade Pact He Signed

The president has asked aides why he shouldn’t withdraw from the agreement, which he signed during his first term, though he has stopped short of flatly signaling that he will do so, according to the people who spoke on condition of anonymity to describe internal discussions. (…)

Greer said Tuesday that the administration would hold separate talks with Mexico and Canada, arguing that trade ties with Canada are more strained. He did not say whether Trump would approve an extension.

“Generally speaking, these negotiations are going to proceed bilaterally and separately, the Mexicans are being quite pragmatic right now. We’ve had a lot of discussions with them. With the Canadians, it’s more challenging,” Greer said on Fox Business. (…)

If the countries agree to a renewal, the accord would remain in force for another 16 years. But if that doesn’t happen, it could trigger annual reviews for a decade until the deal’s expiration in 2036. Any country could announce their intent to withdraw with six months’ notice.

Such a move would shake the foundations of one of the largest trading relationships in the world — the pact covers roughly $2 trillion in goods and services — and even the threat of a US departure would stoke uncertainty for investors and world leaders.

US business groups and lawmakers would almost certainly rebel. The prospect of higher tariffs would also threaten to exacerbate affordability concerns heading into November’s midterm elections, in which Trump’s Republicans already face an uphill battle to keep control of Congress. (…)

It’s unclear if Trump will threaten publicly to leave or formally give the warning. It’s possible if he did so, he may use it as leverage to reach a more favorable deal rather than follow through on pulling the US out of the agreement. (…)

Trump threatened to leave Nafta before agreeing to the new deal that tightened rules, raised US auto content requirements and included a sunset clause, which mandated this summer’s renegotiation.

Even though he negotiated the current system, Trump has soured on the North American trading relationship. During a visit to a Ford Motor Co. plant near Detroit, he called the pact “irrelevant” but stopped short of saying he would quit it. He has also floated the possibility of negotiating bilateral agreements with Canada and Mexico.

“I don’t even think about USMCA,” he said. “I want to see Canada and Mexico do well, but the problem is we don’t need their product.” (…)

China Eases Duties on EU Dairy in Latest Sign of Trade Thaw

China set final import tariffs on some dairy products from the European Union well below preliminary rates outlined late last year, in the latest sign of stabilizing trade ties between Beijing and Brussels.

The duties — set at as much as 11.7% following an anti-subsidy investigation — apply to goods including fresh and processed cheese and will take effect from Friday, China’s Ministry of Commerce said on Thursday. That compares with initial duties, collected in the form of deposits, of as much as 43% that were announced in December.

There have been efforts to deepen economic cooperation between the two sides following a leaders summit in July, including a recent visit by French President Emmanuel Macron to China. Earlier this week, the EU moved to exempt one of Volkswagen AG’s China-built electric vehicles from hefty import duties, the first car to get approval under a new mechanism aimed at thawing tensions. (…)

The final import tariff rates set on pork — announced in December — also came in significantly lower than initial levels.

“China is willing to maintain dialogue with the European side to create an open, stable market environment for Chinese and European industries,” Ministry of Commerce spokesperson He Yadong said on Thursday, praising a “soft landing” of tariff disputes over Chinese-made EVs. (…)

Donald Trump’s policies will add $1.4tn to US deficit over next decade, watchdog says Congressional Budget Office warns Washington’s public finances are ‘not sustainable’

Donald Trump’s policies will expand the federal budget deficit by $1.4tn over the coming decade, Congress’s fiscal watchdog has warned, driving up public debt and leaving government finances on an unsustainable path.

The Congressional Budget Office on Wednesday raised its estimate of cumulative deficits to the end of 2035 by 6 per cent, compared with a previous forecast in January 2025, following the implementation of the president’s sweeping tax and spending bill and his immigration policies.

It said the annual deficit would rise from $1.9tn this year to $3.1tn by 2036, pushing federal debt levels beyond their second world war record as soon as 2030.

“Our budget projections continue to indicate that the fiscal trajectory is not sustainable,” said CBO director Phillip Swagel.

The warning from the non-partisan agency that sits within the legislative branch of government will add to heightened investor concerns about the scale of the US debt pile. “There’s no sugarcoating it: America’s fiscal health is increasingly dire,” said Jonathan Burks at the Bipartisan Policy Center. “Our debt is now 100 per cent of GDP, and rather than pumping the brakes, we are accelerating.”

The 2025 One Big Beautiful Bill Act, the president’s flagship fiscal law, which extended tax cuts from his first term, will increase deficits by $4.7tn by 2035, the CBO said on Wednesday. The administration’s crackdown on immigration will add a further $500bn. Revenues from the president’s tariffs on trading partners will partly offset the rise, lowering overall deficit levels by about $3tn.

The widening deficits will push debt from 101 per cent of GDP this year to 108 per cent by 2030, eclipsing the previous high of 106 per cent in 1946 in the wake of the second world war. By 2036 it is set to reach 120 per cent.

The US government debt market is five times the size it was in 2008, and investors have long been worried that the supply of Treasury debt is straining the limits of demand. The scale of debt on offer has hit prices and helped lift yields on the benchmark 10-year Treasury note, which sets the rate at which the government borrows money, as well as mortgage rates.

The Trump administration, intent on lowering the deficit and making housing more affordable, has expressed a desire to lower long-dated Treasury yields. The 10-year yield rose on Tuesday after an auction of $42bn worth of notes was met with soft demand. Primary dealers, big banks required to buy the remainder of the offering after the auction is over, took up the biggest percentage since August 2025, according to BMO Capital Markets.

“The fiscal trajectory of the US still needs some fixing in the longer run,” said Gennadiy Goldberg, head of US interest rates at TD Securities. “The CBO’s estimate will add to the narrative that the US fiscal picture is unsustainable.”

Other analysts warned the extent of the borrowing would leave the US unable to take adequate steps in the face of any unexpected downturn. “A healthy balance sheet is critical for a growing economy, national security and the ability to respond to unforeseen emergencies,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

“With debt around 100 per cent of GDP and growing, we will enter the next crisis with a higher debt-to-GDP ratio than we have ever had before.” Goldberg at TD Securities cautioned that significant uncertainty remained around tariffs, with a pending case before the Supreme Court set to determine the legality of many of the president’s levies. “A lot of these numbers could also change significantly depending on the outcome . . . I think the CBO is making their estimate in a really uncertain environment,” he said.

Hmmm…someone at the CBO could soon be looking for another job…

U.S. Retail Sales Unexpectedly Flat in December The softer-than-expected data feed into economists’ concerns about a fragile consumer economy

U.S. retail sales were flat in December, a disappointing datapoint for economists who had expected growth despite concerns about a fragile consumer economy.

Sales at U.S. stores were roughly unchanged in December versus November at $735 billion, after rising by 0.6% in November, the Commerce Department said Tuesday. Analysts polled by The Wall Street Journal were anticipating a 0.4% increase.

Overall in 2025, total sales by retailers grew by 3.7%. In December, sales declines at car dealers, furniture and electronics stores were offset by sales growth at sellers of building materials, food and beverages and gasoline. The figures are seasonally adjusted but not adjusted for inflation. (…)

How significant is such a big miss in the biggest retail month of the year?

• Total sales were flat vs +0.4% expected.
• Ex-autos & gas sales were flat vs +0.4% expected.
• Control group sales were –0.1% vs +0.4% expected. (ex autos, gas, building materials and restaurants)
• The level of core retail sales was revised down by 0.4% in November, reflecting a 0.2pp revision to core retail sales growth in both October and November.

Goldman Sachs:

Soft retail sales growth in December and downward revisions to prior months suggest softer consumption growth in Q4 than our previous GDP tracking assumptions. We lowered our Q4 GDP tracking estimate by 0.4pp to +1.6% (quarter-over-quarter annualized). Our Q4 domestic final sales estimate stands at +1.1% and our private domestic final sales estimate stands at +2.3%.

Last 4 months of 2025:

• Total sales up 2.0% annualized thanks to one strong November.
• Control group sales: +1.2% annualized.

Wells Fargo:

(…) a weak end isn’t necessarily indicative of the start of a new consumer trend. (…)

The latest data ultimately suggest households are still broadly spending in the face of sustained and compounding inflation and an uncomfortable moderation in the jobs market. We expect consumer spending to be sustained this year as higher after-tax incomes and average tax refunds as part of the One Big Beautiful Bill Act help offset some of these household constraints.

One can also point to seasonal adjustments given that unadjusted sales rose by 3.8% YoY, the biggest YoY increase in three months, slightly higher than the +3.7% YoY gain in retail sales for all of 2025.

The fact remains that, starting in September, growth in retail sales (mainly goods) got progressively weaker than payroll growth, likely in reaction to rising goods prices, now up 1.6% vs flat last spring.

The Census Bureau cannot give us a date for January 2026 data. The only official data so far is light vehicle sales, down 4.1% in units YoY. January volume was the lowest reading since December 2022 (amid the industry chip shortage) and represents the fourth consecutive month with a YoY decline. But January sales were likely negatively impacted by the large winter storm late in the month.

Bank of America today informed us that seasonally-adjusted spending growth per household was flat MoM in January, following the 0.5% MoM increase in December, likely reflecting weakness given the winter storms.

Interestingly:

In our view, a “K-shape” (or divergence) in spending growth may be beginning to emerge between higher-income households and middle-income households, as opposed to just with lower-income households. In fact, in January, the gap in spending growth between higher-income households and all others was at its largest since mid-2022, according to Bank of America internal data. Lower- and middle-income households’ spending growth ticked down to 0.3% and 1.0% YoY, respectively, while higher-income households’ spending was more stable at 2.5% YoY.

A similar pattern is emerging in after-tax wage growth, with the gap between higher- and middle-income households at its largest in nearly five years, according to Bank of America internal data. While higher-income households’ wage growth was 3.7% YoY in January, a solid improvement from the 3.3% YoY in December, middle-income families’ wage growth saw only a marginal improvement, increasing to just under 1.6% YoY in January from over 1.5% in December.

(…) lower-income households saw an average wage increase of 0.9% YoY in January.

Yesterday we also got the Q4 Employment Cost Index

Employment cost growth continued to moderate at the end of the year, rising a softer-than-expected 0.7% in the fourth quarter. Over the past year, labor costs have risen 3.4%, the slowest pace since the spring of 2021. The ongoing slowdown in compensation growth according to the ECI marks a departure from the more timely average hourly earnings data, which has shown wages rising at just under 4% year-over-year since early 2025.

But we believe the ECI’s signal of further softening in the jobs market carries more weight in Fed officials’ assessment of the labor market. The ECI has long been considered the Fed’s preferred measure of labor costs because it controls for compositional changes in employment and is broader in scope since it includes benefit costs and compensation costs for public sector workers.

The easing in total compensation growth has been underpinned by the gradual slowdown in wages & salaries, which rose 3.3% year-over-year in the fourth quarter. (…) (Wells Fargo)

If the ECI is right, wages are actually rising 3.0-3.5% YoY vs 3.5-4.0% per hourly wages. Not insignificant when inflation is around 3.0%.

The squeeze is still on, and it seems to be percolating to the middle class per BoA. But

In the short term, higher tax refunds are likely to help. BofA Global Research estimates that tax refunds in 2026 will increase by around $100 billion or 25% higher than in 2025. Exhibit 12 shows that in 2025, younger (Gen Z and Millennials) and lower-income households appeared to see the largest increases in their card spending as a result of refunds. Given these cohorts are likely to be the most challenged by affordability issues, larger refunds in 2026 could also help support their spending this year.

Finally, Bank of America data shows that 401(k) plan participants’ average account balance has been steady over the past two quarters and is up significantly compared to the past two years.

• Mattel Shares Drop 28% After Toy Maker’s Holiday Sales Sputter Fourth-quarter sales rose 7% to $1.77 billion, below Wall Street expectations

Mattel shares plunged as much as 28% in late trading after the toy maker said an anticipated surge in holiday sales came up short, and it issued a lower-than-expected profit forecast for 2026.

The shortfall in sales in the critical weeks before Christmas prompted the maker of Barbie dolls and Hot Wheels cars to step up discounts, it said, putting a squeeze on profit margins. Both sales and profit came in below Wall Street expectations for the fourth quarter. (…)

Mattel executives said price-sensitive consumers shopped for deals while retailers were cautious in managing their inventory.  

“December is historically the biggest month of the year,” Chief Executive Ynon Kreiz said in an interview Tuesday. “But because of the shift in retailer ordering patterns, orders were even more back-end loaded.”

Fourth-quarter sales rose 7% to $1.77 billion, below the $1.84 billion that Wall Street had modeled. Profit and gross margins fell sharply because of increased discounts, as well as tariff costs and other factors.

Mattel also issued guidance for the current year that was below expectations, as the company plans additional investments to stoke sales.

The results stood in contrast to rival Hasbro, which reported earnings earlier in the day. Hasbro said shoppers had been willing to pay higher prices for toys during the holiday season, allowing the company to pass along tariff costs without significantly hurting demand.

Mattel’s Kreiz noted that December sales only missed expectations in the U.S., and that the company performed as expected and gained market share internationally.

The promotional environment in December was steeper than expected, requiring Mattel to lean more heavily into discounts than originally planned. The company raised prices last summer in response to tariffs, and Kreiz said it continues to take a “very strategic” approach to pricing to drive demand and “offer the right quality and value for consumers.” (…)

For the year, Mattel projected adjusted earnings of $1.18 to $1.30 a share, below analyst views for $1.77 a share. The company forecast sales to climb 3% to 6% on a constant currency basis.

For its three-months ended Dec. 31, Mattel posted a profit of $106.2 million, or 34 cents a share, down from $140.9 million, or 42 cents a share, a year earlier.

Stripping out certain one-time items, earnings were 39 cents a share. Analysts polled by FactSet expected adjusted earnings of 54 cents a share. (…)

• US Consumer Delinquencies Jump to Highest in Almost a Decade

Delinquency rates on loans ranging from mortgages to credit cards rose to 4.8% of all outstanding US household debt in the fourth quarter, the highest level since 2017, driven by higher defaults among low-income and young borrowers.

While the overall share of loans in some stage of default is near pre-pandemic averages, the rise in delinquencies among the lowest earners adds to evidence of an increasingly bifurcated economy, data from the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit released Tuesday showed.

The rise in defaults was driven by delinquencies in mortgage payments, and New York Fed researchers found that they were particularly high in lower income zip codes. Student-loan delinquencies, which have surged following a pause in payment requirements during the pandemic, also contributed to the rise in defaults, the researchers said. (…)

“Delinquency rates for mortgages are near historically normal levels, but the deterioration is concentrated in lower-income areas and in areas with declining home prices.”

The share of credit-card loans that were at least 90 days delinquent rose to 12.7% — the most since the first quarter of 2011 — and the share of auto loans in serious delinquency climbed to 5.2%, just shy of the record reached in 2010.

The increased struggle in low-income and young borrowers’ ability to pay their loans is consistent with elevated unemployment rates among some parts of the population, they added. The jobless rate for workers 16 to 24 years old stood at 10.4% in December, near the highest levels since the depths of the pandemic in 2021.

Some 16.3% of student-loan debt became delinquent in the fourth quarter, the biggest increase on record in data going back to 2004.

U.S. Farmer Sentiment Weakens To Start The Year

The Purdue University-CME Group Ag Economy Barometer dropped 23 points in January to 113, down from 136 in December, marking the sharpest monthly decline in recent quarters and the lowest reading since September 2024. The survey of 400 U.S. agricultural producers, conducted January 12-16 and released February 3, showed deteriorating sentiment across both current conditions (down 19 points to 109) and future expectations (down 25 points to 115).

The most pronounced weakness emerged in producers’ five-year outlook for U.S. agriculture, with the index measuring expectations for widespread good or bad times falling from 122 to 88. Half of surveyed farmers reported their operations were worse off than a year ago, while 59% now expect bad financial times in the next twelve months, up from 47% in December. Only 62% of producers believe the U.S. is headed in the right direction, down from 75% the prior month.

Mounting debt pressures are compounding the downturn; 21% of respondents anticipate larger operating loans in 2026 versus 2025, up from 18% a year earlier. Among those expecting increased borrowing, 31% cited carryover of unpaid operating debt from the prior year as the primary driver, up sharply from just 5% in 2023, 17% in 2024, and 23% in 2025. “What stands out this month is the growing number of producers who report that higher operating-loan needs stem from carrying over unpaid debt from the previous year,” said Michael Langemeier, the barometer’s principal investigator and director of Purdue’s Center for Commercial Agriculture. “That points to increasing financial pressure heading into the year.”

Export concerns intensified in January; 16% of respondents expect U.S. agricultural exports to decline over the next five years, tripling from 5% in December. For corn and soybean producers specifically, 21% foresee soybean export declines, up from 13% previously, with 80% expressing concern about Brazilian competition (44% “very concerned”). The Farm Capital Investment Index dropped 11 points to 47, its lowest level since October 2024, with just 4% of producers planning to increase farm machinery purchases, a direct headwind for agricultural equipment demand.

The January survey coincides with USDA’s World Agricultural Supply and Demand Estimates report, which showed higher-than-expected U.S. corn yields, adding to bearish sentiment. For AFN, the barometer’s deterioration underscores a challenging demand environment as farmers face tightening margins, rising debt services, and heightened capital expenditure caution entering 2026, reaffirming the belief that 2025 was not the trough for the North American agricultural industry.

The backlash captures a deeper problem for Trump: Niche constituencies he courted in 2024 are growing disillusioned.

• Podcast populists: The Trump administration’s handling of the Epstein files and aggressive immigration enforcement has alienated some anti-establishment podcasters who helped shape his appeal to young men, including Joe Rogan and comedian Andrew Schulz.
• Nonwhite voters: Trump’s support among Black and Latino Americans has slipped after he made major gains in 2024, as cost-of-living pressures squeeze these voters.
• Farmers: Even after Trump rolled out a $12 billion “bridge payment” to offset tariff-related losses, agricultural leaders warned last week of potential “widespread collapse” if Congress fails to act.

China’s Years-Long Retreat From US Treasuries Flags Bigger Risks

The slump in Treasuries after China’s latest call to curb its holdings was fleeting, but it put a spotlight on Beijing’s decade-long shift from US debt and rekindled fears about a broader, global retreat.

A look at the data on China’s Treasury holdings suggests why traders were so quick to move on from the report that Beijing had urged Chinese banks to limit their Treasury purchases. Once the largest foreign lender to the US government, China has quietly halved its holdings of Treasuries since 2013 — and investors appear to have decided the latest headlines fit that trend.

The danger now is whether President Donald Trump’s unpredictable policies alienate US allies further, and encourage traditional lenders like Europe and Japan to follow in China’s footsteps.

So far, a surge in foreign demand suggests the long-term shift by America’s biggest geopolitical rival is more the exception than the rule. (…)

For China, regulators have grown worried that large holdings of US government debt may expose banks to sharp swings. Officials advised financial institutions to limit purchases and instructed those with high exposure to pare down their positions, Bloomberg reported, citing people familiar with the matter. (…)

“The whole idea of lending to the government of your primary adversary should no longer be welcomed in Beijing,” he said. (…)

Outside Europe, India’s holdings have dropped to a five-year low as the nation pushed to support its currency and diversify reserves. Brazil’s long-term Treasuries holdings have also declined.

“The broader trend is clear,” said Damien Loh, chief investment officer at Ericsenz Capital in Singapore. “Non‑US entities, both sovereign and corporate, are moving to reduce their overweight positions in US assets, particularly Treasuries.”

While foreign holdings of Treasuries hit a record $9.4 trillion in November, the share of the total debt is smaller — reflecting that their purchases haven’t kept up with the growth in US government borrowing. Overseas investors now hold about 31% of the total, compared to roughly 50% at the beginning of 2015.

Still, the moves in the world’s largest debt market are a long way from adding up to a buyers’ strike.

As long as the US runs a trade deficit and sends dollars overseas, foreign countries must find a home for those dollar revenues, with Treasuries remaining one of the main destinations, said Jim O’Neill, the former chairman of Goldman Sachs Asset Management.

“It is a red herring,” said O’Neill about foreign investors dumping US debt en masse. “The US bond market is very large. If China or Japan reduces their holdings, someone else will buy them.”

Brad Setser, a senior fellow at the Council on Foreign Relations, estimates that China’s “true” holdings of US Treasuries exceed $1 trillion, far above the $683 billion reported by the US Treasury.

That’s because Beijing may have obscured its footprint by shifting assets to custodians in Europe. Belgium — whose holdings are considered to include some of those Chinese accounts — has seen its Treasury ownership quadruple since the end of 2017 to $481 billion. (…)

“The PBOC is largely stuck with the dollar because of a dearth of safe and liquid assets denominated in other currencies,” he said. “It is highly unlikely that China has diversified away from US Treasury securities to the extent suggested by official data.”

Meanwhile:

Dozens of cities in #China have reported progress in clearing hidden debt in the past year, including a significant reduction in the number of local government financing vehicles, the Securities Times reports, citing regional governments’ work reports for 2025.

With the 2028 target of eliminating all existing hidden debt and the June 2027 deadline for local government financing platform companies (hereinafter referred to as “urban investment companies”) to complete their “exit from the platform” task drawing ever closer, local debt reduction efforts have entered a critical stage of overcoming difficulties.

A review of the 2026 government work reports and fiscal budget reports recently released by various regions by the Securities Times reporter reveals that in the past year, many localities announced the elimination of local hidden debt, a significant reduction in the number of urban investment companies, and some regions even exceeded their debt reduction targets.

In 2025, the risk of local government debt in my country further subsided, and after debt swaps in various regions, the average interest cost of debt decreased by more than 2.5 percentage points. According to incomplete statistics from reporters, since 2026, at least 34 cities across the country have announced the latest progress in their efforts to eliminate hidden debt, including Siping City and Songyuan City in Jilin Province, and Shuangyashan City in Heilongjiang Province, which announced that they had achieved zero hidden debt last year. (…)

Hidden debt in more and more regions will be cleared ahead of schedule, and the work of resolving hidden debt is nearing completion,” Zhou Lijun, executive director of the Public Utilities Department of Orient Securities, told the Securities Times. (…)

A Bridge Too Far?

In June 2023, Michael Leppert wrote For Trump supporters, ‘a bridge too far’ must be nearby

I often wonder where idioms like “a bridge too far” originate. This phrase comes from the title of the 1974 book of the same name, by Cornelius Ryan. The book tells the story of Operation Market Garden, the Allies’ plan of attack to conquer several bridges in the Netherlands in September of 1944. The goal was to establish a route over the Rhine River for an invasion into Germany.

The Allies never captured that last bridge at Arnhem, and the mission ultimately failed.

For Americans who possess apparently unrelenting fealty to former President Donald Trump, the bridges in front of them are also numerous. Trump’s influence, his top position in Republican party politics, relies on a constituency that will seemingly follow him anywhere.  (…)

What bridge will be too far? (…)

Yesterday’s NYT: Bridge Owner Lobbied Administration Before Trump Blasted Competing Span to Canada

The billionaire owner of a bridge connecting Michigan with Canada met Howard Lutnick, the U.S. Secretary of Commerce, on Monday hours before President Trump lambasted a competing span, in the latest flashpoint in the deteriorating relationship between the United States and Canada.

Matthew Moroun is a Detroit-based trucking magnate whose family has operated the Ambassador Bridge between Detroit and Windsor, Ontario, for decades. He met on Monday with Mr. Lutnick in Washington, according to two officials briefed on the meeting who requested anonymity to discuss a private conversation.

After that meeting Mr. Lutnick spoke with Mr. Trump by phone about the matter, the officials said.

Shortly afterward, Mr. Trump threatened to block the planned opening of a new bridge between Detroit and Windsor, which would take away toll revenue from Mr. Moroun’s crossing, if Canadian officials did not address a long list of grievances. (…)

The Moroun family had previously called on Mr. Trump to halt the construction of bridge — which, once opened, would compete with the Ambassador Bridge for the more than $300 million in daily cross-border trade. (/…)

In his first term, Mr. Trump had promoted the Gordie Howe Bridge in a joint statement with Canadian officials as a symbol of the countries’ deep ties and as “a vital economic link between our two countries.” (…)

Totally unrelated:

I am a bit of an etymologist, interested in the origin of words or expressions.

Henry Goddard served as the Director of Research at the Vineland Training School for Feeble-Minded Girls and Boys in Vineland, New Jersey from 1906-1918. Between 1908, when Goddard first translated a version of the Binet scale [IQ tests] and had it published in America, and 1930, over nine million adults and children had been tested using this scale. Standardized mental measurement cemented the authority of psychology as a serious science.

Binet’s original scale of mental measurement had included two gradations of deficiency: the “idiot,” who had a mental age of 2 or younger, and the “imbecile,” who had a mental age of 3 to 7 years. However, Goddard was not satisfied that this scale adequately addressed the problem of mental deficiency.

He believed the greatest threat to civilization’s advance lay with those who demonstrated a mental age of 8 to 12 years. This group, consisting of those closest to a “normal” mental age (13 or older), posed the greatest danger, in his opinion.

Goddard hoped to draw attention to their presence in the public school systems that were struggling to make “normal” people out of them by keeping them in regular classes. Government agencies were making a grave error in treating them as “normal,” in Goddard’s mind. Even the highest grade of the feebleminded could never become normal, he argued, though they could pass for normal, making them the most likely culprits for spreading the defect to future generations. Rather than trying to disguise or ignore their disabilities, physicians and superintendents needed to underscore them.

Goddard needed a word that would carry scientific legitimacy and arouse public concern, for as Goddard stressed, physicians needed public assistance in hunting out individuals with high-grade deficiencies. Yet there was no word in the English language which adequately expressed the distinctiveness and urgency of their condition. Goddard, therefore, constructed his own term from the Greek word for foolish, moronia and the result was the diagnostic label of the “moron” for those who exhibited a mental age of 8 to 12 years. (…)

The “moron” represented those who could not develop beyond the primitive savagery of adolescence. He (or she), because of faulty genes resulting in low intelligence, remained trapped in this primitive phase of development. (…) (Encyc)

The word “moron” is derived from the Ancient Greek μωρός (mōrós), which translates to “foolish,” “dull,” or “stupid”. While the Greek word existed for millennia, it was not used as a specific English noun until the early 1900s.

Under Goddard’s system, a “moron” was an adult with a mental age between 8 and 12 years (or an IQ roughly between 51 and 70).

It was the highest functioning of three “scientific” categories of intellectual disability:

• Moron: Highest (Mental age 8–12)
• Imbecile: Middle (Mental age 3–7)
• Idiot: Lowest (Mental age < 3).

Goddard’s creation of the term was heavily tied to the eugenics movement. He believed “morons” were a threat to society because they could “pass” as normal but were supposedly prone to criminal behaviour and “bad breeding”. His work was used to justify compulsory sterilization and restrictive immigration policies, particularly at Ellis Island.

By the 1920s, the word leaked into the general public and began to be used as a common insult. Because it became so widely used as a slur, the medical community eventually abandoned it in favour of terms like “mild mental retardation” (which has also since been deprecated).

Also totally unrelated:

FOX News: Trump promises Schumer funding for NY tunnel project — if Penn Station, Dulles Airport are renamed after him

President Donald Trump told Senate Minority Leader Chuck Schumer last month that he was finally prepared to drop his freeze on billions of dollars in funding for a major New York infrastructure project.

But there was a condition: In exchange for the money, Schumer had to agree to rename New York’s Penn Station and Washington’s Dulles International Airport after Trump. (…)

In the weeks since, Trump has continued to withhold the more than $16 billion earmarked for the long-planned Gateway project connecting New York and New Jersey through a new rail tunnel beneath the Hudson River.

The two states are now suing the Trump administration over the freeze, alleging in a complaint filed earlier this week that the funding suspension is unlawful. (…)

Since returning to the White House, the president has introduced a slew of initiatives bearing the Trump name, including the Trump Gold Card offering a high-priced path to citizenship, the TrumpRx website offering lower-priced prescription drugs, and a new Trump-class battleship meant to solidify his era of “peace through strength” foreign policy for years to come.

Trump in recent months has set his sights on even bigger targets: Adding his name first to the US Institute of Peace and then, even more controversially, to Washington’s iconic Kennedy Center.

Still, Trump’s offer to Schumer would have represented perhaps his most audacious move yet, an apparent attempt to leverage the future of a massive infrastructure project to fulfill his own personal wishes.

The commission in charge of the Gateway tunnel has warned that it will soon have to shut down work on the project and lay off roughly 1,000 workers if the Trump administration does not release the funding it needs.

The tunnel’s construction predates Trump’s return to office, with the federal government on the hook for a significant portion of the funding needed to complete it. But Trump moved to halt the project late last year, a decision that Democratic officials in New Jersey and New York have argued was politically motivated. (…)

Feb. 6: Judge orders Trump administration to restore funding for rail tunnel between New York and New Jersey

(…) U.S. District Judge Jeannette A. Vargas in Manhattan approved a request by New York and New Jersey for a temporary restraining order barring the administration from withholding the funds while the states seek a preliminary injunction that would keep the money flowing while their lawsuit plays out in court.

“The Court is also persuaded that Plaintiffs would suffer irreparable harm in the absence of an injunction,” the judge wrote. “Plaintiffs have adequately shown that the public interest would be harmed by a delay in a critical infrastructure project.” (…)

Speaking to the media on Air Force One, Trump was asked about reports that he would unfreeze funding for the tunnel project if Schumer would agree to a plan to rename Penn Station in New York and Dulles International Airport in Virginia after Trump.

“Chuck Schumer suggested that to me, about changing the name of Penn Station to Trump Station. Dulles Airport is really separate,” Trump responded.

Schumer responded on social media: “Absolute lie. He knows it. Everyone knows it. Only one man can restart the project and he can restart it with the snap of his fingers.”

Feb. 9: Judge temporarily halts order requiring Trump to unfreeze tunnel funding

(…) Vargas said she would put her order on hold until Thursday at 5 p.m. to give the Second Circuit U.S. Court of Appeals time to consider the government’s emergency request. But she denied the government’s request for an extended halt, saying New York and New Jersey have demonstrated the shutdown of operations prompted by the funding freeze “will have an immediate and severe impact on the region’s economic interests.” (…)

Tunnel vision: “the tendency to focus exclusively on a single or limited goal or point of view.”

Tunnel vision as slang refers to a state of extreme, singular focus on one goal or task while ignoring all other, often important, aspects of a situation. It implies a narrow perspective or “one-track mind,” often causing a person to disregard context, advice, or surrounding details.

Key Aspects of Tunnel Vision:

• Intense Goal Focus: Being hyper-motivated or driven to achieve a specific outcome, such as working solely on a project or chasing a goal to the exclusion of other responsibilities.
• Neglect of Surroundings: Ignoring potential risks, alternative perspectives, or other important details outside the immediate focus.
• Negative/Neutral Context: Often used to describe narrow-mindedness, refusal to consider other viewpoints, or an unhealthy obsession that ignores the bigger picture.