US Manufacturing PMIs

• S&P Global:

The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI^®) surged higher in September, posting 55.9, up from 53.9 in August. Recording well above the critical 50.0 no-change mark, the latest reading was the strongest since May 2022. Growth has now been registered every month since August 2025.

All five PMI components supported the uplift in the headline index. Most notably, output and new orders registered faster rates of growth. Panelists commented on a broad-based uplift in demand, with government and tech-related industries mentioned as sources of higher sales, with latest data indicating the best rise in sales since April 2026 and the second-strongest since May 2022. Firms responded by increasing their production sharply to extend the current run of output growth to 16 months.

Once again, it was the domestic market that underpinned demand growth as new export orders fell for the fifteenth successive month. Panelists reported that tariffs and elevated shipping costs had dampened international sales.

Strong growth in overall sales and production encouraged companies to take on additional staff in September. The net increase in jobs was the highest in over five years as firms scrambled to expand capacity and deal with the influx of new work and existing workloads.

However, there were several reports of difficulties in securing suitable labor, and this was a factor that led to another rise in work outstanding. Overall, backlogs of unfinished orders rose for a seventh successive month and to the greatest degree since April.

Manufacturers also reported that input delivery delays had contributed to backlog growth. Indeed, latest data showed typical vendor lead times lengthening to the greatest degree since August 2022. There were reports of widespread stock shortages at suppliers, with a swathe of products reportedly hard to source, especially steel and electronics-related items. Shipping challenges across global maritime routes, plus customs delays (especially at the Canadian border) added to supply-side pressure.

The short supply of inputs, tariffs and the war in Iran all served to push up manufacturing input costs at a faster rate than in August. Alongside metals and electronics, firms widely reported increased energy and fuel prices. In response, manufacturers raised their own charges steeply albeit to the weakest degree since February.

Despite rising inflationary pressures, and ongoing supply-side challenges, manufacturers are confident the recent upswings in production and new orders can be sustained. Indeed, confidence in the outlook remained positive (albeit a little below its historical trend), with firms linking their optimism to positive order book pipelines, and expectations for market, product and commercial expansion. Some firms also hope for greater stability in the business environment and a drop in energy prices.

Reflective of positive production and sales forecasts, companies sought to build inventories of inputs and finished goods. Purchasing activity rose markedly, expanding at an above-trend pace that was the fastest since June. Despite supply-side delays, and a strong uplift in production needs, the rise in purchasing activity helped to drive stocks of purchases higher for the sixth successive month.

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

“Order book backlogs are rising and suppliers are increasingly busy, pointing to stretched capacity as companies struggle to meet demand across both consumer-facing and business sectors. This is most notable in the investment and production of machinery and equipment, linked in many cases to rising AI-related spend.”

• ISM:

“The Manufacturing PMI^® registered 54.5 percent in September, 0.1 percentage point below the August figure of 54.6 percent. The overall economy continued in expansion for the 23rd month in a row. (A Manufacturing PMI^® above 47.5 percent, over a period of time, generally indicates an expansion of the overall economy.)

The New Orders Index expanded for the ninth consecutive month after four straight readings in contraction, registering 55.3 percent, up 1.6 percentage points compared to August’s figure of 53.7 percent. (…)

The Prices Index remained in expansion (or ‘increasing’ territory), registering 77.9 percent, a notable increase of 6.8 percentage points compared to August’s reading of 71.1 percent.

The Backlog of Orders Index registered 56.4 percent, up 4.6 percentage points compared to the 51.8 percent recorded in August.

The Employment Index reading of 52.7 percent is up 1.5 percentage points from August’s figure of 51.2 percent,” says Spence. (…)

“The New Export Orders Index lost 2.3 percentage points in September for a reading of 50.9 percent versus 53.2 percent in August. (…)

“In September, three of four demand indicators (the New Orders, Backlog of Orders and New Export Orders indexes) remained in expansion, and the Customers’ Inventories Index remained in ‘too low’ territory, contracting at a faster rate. A ‘too low’ status for the Customers’ Inventories Index is usually considered positive for future production.

“Regarding output, the Production Index expanded for the 11th month in a row, with the positive-to-negative comment ratio dropping again in September (1.6 positive comments for every negative one, compared to a 2.2-to-1 ratio in August and 3.3-to-1 in July). The Employment Index remained in expansion and gained 1.5 percentage points. The positive-to-negative comments ratio on Employment was 1.5-to-1 in September.

“Finally, inputs (defined as supplier deliveries, inventories, prices and imports) were mixed, with the Supplier Deliveries Index decreasing 0.3 percentage point, the Inventories Index declining another 2 percentage points and returning to contraction, and the Prices Index increasing 6.8 percentage points, returning to its level at the start of the Iran War. The Imports Index lost 1.5 percentage points, to 51 percent versus 52.5 percent in August. (…)

Some comments:

• “Orders have doubled yet again, and delivery times have also doubled, in the semiconductor, electronics and government sectors, with remaining sectors flat to down. Coupled with supply chain lead times and pricing pressures, the factory backlog has nearly doubled. Canada tariffs have impacted cross-border costs and left our supply chain team scrambling — those supply chains took years to develop and nurture — hurting the very lead times government buyers are concerned about.” [Machinery]
• “Order levels remain strong and elevated; we have orders through year-end at above forecast levels. Our biggest challenge continues to be a severe shortage of workers, limiting our production output to meet demand. The second challenge is general availability of steel; the market is getting worse, and more production delays are expected as we gap out of needed material.” [Fabricated Metal Products]
• “Raw metals continue to be challenging, especially with the uncertain nature of tariffs being on and off again. New tariffs against Canada have drastically increased costs for capital expenses as well as assemblies.” [Electrical Equipment, Appliances & Components]
• “Higher interest rates slow down the growth of new construction projects; we also have to face up to the higher cost of components from overseas due to tariffs and freight rates. Due to booming demand of AI and data centers, domestic steel capacity has been stretched and pushed. Higher steel costs each month increase our raw-material and finished-goods costs.” [Machinery]
  

• “Every month, we are faced with new headwinds created by this administration. This month, it is the trade war with Canada, which every day is getting worse — causing prices to go up and uncertainty that creates massive disruption. Buying continues to get pushed out indefinitely as customers don’t want to spend on capital expenditures until there is more certainty of costs and demand. The only thing that is predictable is the chaos that is created by these trade policies.” [Transportation Equipment]

Ed Yardeni:

(…) The upswing is being fueled by the AI capex boom, reshoring, and stronger incentives for domestic investment, including immediate expensing under the OBBBA.

Meanwhile, input cost pressures remained elevated in September. The ISM prices-paid index rose to 77.9, near its highest level since 2022, while regional Fed price surveys also remained high (chart).

Respondent comments in the ISM survey noted that demand remains strong in semiconductors, electronics, machinery, and AI/data-center-related markets, but that strength is increasingly running up against worker shortages, stretched steel capacity, longer lead times, and rising input costs.

• AI Data Center Construction Goes Nuts

The amount spent on the construction of data centers spiked by another 7.5% in August from July, and by 73% year-over-year to a seasonally adjusted annual rate of $85 billion, according to construction data from the Census Bureau today. Since the beginning of 2021, the annual rate of construction spending on data centers has spiked by 823%.

These amounts only reflect the construction costs of the buildings, the improvements around the buildings, and the equipment integrated into the buildings, such as HVAC systems. But that’s the cheap part of a data center.

Not included here is the expensive part: equipping the completed data center buildings with servers and racks, with electronic and optical equipment to connect the servers to the internet, and with the electrical equipment that supplies the servers with prodigious amounts of power, including in many cases onsite diesel or gas-turbine power generators.

 

 

Canada Manufacturing PMI: Modest growth sustained in September but spike incost inflation

Canada’s manufacturing economy showed a degree of resilience in the face of several headwinds during September. Output rose and firms showed a willingness to backfill vacancies with skilled workers to support recent long-term contract wins.

However, tariffs and elevated global energy prices due to the war in Iran continued to have a damaging impact on the sector.

Input cost inflation accelerated to its highest level since July 2022, whilst supplier delivery times lengthened to a degree not seen in over four years. (…)

China: Manufacturing output expands at fastest pace in five months

The headline seasonally adjusted RatingDog China General Manufacturing Purchasing Managers’ Index™ (PMI) remained above the 50.0 no-change mark for the tenth consecutive month in September, indicating an improvement in the health of the manufacturing sector. At 52.1, up from 51.5 in August, the latest reading was the highest in five months and was positively influenced by all five sub-indices apart from the stocks of purchases component, which fell slightly.

An improvement in client demand, driven partly by interest among some companies in accumulating safety stock, had reportedly supported the latest expansion in overall new orders among Chinese manufacturers. This was accompanied by growth in new work from abroad amid reports of robust market conditions overseas. Notably, total new work rose at the fastest rate in five months, while the upturn in new export orders was the best seen since February, with both respective indices signalling solid growth overall.

Stronger inflows of new work led to a faster rise in Chinese manufacturing production in September. This marked the tenth consecutive month in which output had increased, with the rate of growth similar to that seen for new orders and solid. Among the three monitored sub-sectors, consumer goods makers recorded the strongest increases in new orders and output.

Outstanding workloads continued to accumulate at a steady pace among Chinese goods producers despite the expansion in production capacity. Subsequently, firms hired additional staff – both permanent and temporary – to cope with rising workloads. Though only slight, this marked the third time in four months that firms had raised their workforce numbers.

To meet rising production requirements, Chinese manufacturers continued to purchase additional inputs at the end of the third quarter. Anecdotal evidence also suggested that some companies were interested in accumulating additional inventory as part of safety stock building efforts. That said, supplier delays were again observed in September, which partly limited the pace at which input inventory stocks rose. Stocks of purchases nevertheless expanded for the tenth consecutive month, marking the longest run of growth since 2006–07.

Turning to prices, average cost burdens continued to rise among manufacturers during September. The rate of input price inflation was the strongest seen in four months and solid. According to firms, higher raw material prices, particularly for metals and oil, were the main drivers of inflation. As a result, Chinese manufacturers lifted their selling prices slightly in September, following a marginal reduction in August. Export charges likewise rose slightly.

Overall, sentiment in the Chinese manufacturing sector remained positive at the end of the third quarter of the year. Firms were generally optimistic that output would rise in the next 12 months amid expectations for better global macroeconomic conditions and the implementation of business development plans. Although still below the long-run average, the degree of confidence improved from August.

Euro area manufacturing expansion gathers pace in September

September has seen a further encouraging improvement in manufacturing growth across the eurozone, with the rising tide lifting all ships as the upturn has also broadened out to cover all surveyed member states.

Measured across the euro area, production is rising at a rate not seen for four and a half years as firms boost capacity to meet rising demand. Order book growth is also now sufficiently strong to encourage factories to take on additional staff, ending the continual loss of factory jobs that had been reported over the prior three years.

The upturn is being driven by rising demand for investment goods such as machinery and equipment, with output of these capital goods growing in September at a rate not seen since the post-COVID rebound five years ago. This reflects higher demand for AI and defence-related equipment in particular.

Demand for consumer goods continues to fall, however, with the increased cost of living acting as a drag on household spending. It’s therefore worrying to see both input costs and selling prices rising at increased rates again in September, which will fuel speculation about additional rate hikes from the ECB.

Japan: PMI slips to six-month low in September

The latest PMI survey data suggest that growth momentum softened across Japan’s manufacturing industry in September. Firms signalled slower increases in output and new orders, as some companies mentioned that clients were adjusting inventories as an earlier period of stock accumulation began to unwind.

Nevertheless, the survey was consistent with solid growth overall, and rounded off the best quarterly performance since Q1 2014.

Employment remained a particular bright spot, rising at the second-fastest rate since April 2018, as firms remained highly confident that production levels would continue to rise in the year ahead. This was often linked to upbeat forecasts for demand related to semiconductors and AI technology, new product launches and robust international demand.

Nevertheless, there were a number of potential headwinds that could temper performance including further supply chain disruption, component shortages and sharply rising costs.

While companies suggest that the worst of recent price rises may have passed, expenses continued to rise sharply overall at the end of the third quarter. As a result, manufacturers raised their selling prices at one of the sharpest rates recorded since late 2022.

ASEAN manufacturing growth remains solid but loses momentum in September

ASEAN manufacturing had a strong third quarter, regaining momentum after a relatively soft second quarter. Although the region continued to perform well in September, growth shifted down a gear.

Renewed tensions in the Middle East and the resulting rebound in oil prices have prompted manufacturers to temper their expectations for the year ahead.

Nonetheless, the sector’s continued strength helped revive hiring, while purchasing activity rose further. Part of this increase, however, reflected efforts by some firms to get ahead of potential raw material shortages and subsequent price hikes. Although the road ahead remains difficult to assess, given heightened geopolitical uncertainty, ASEAN manufacturers are more than holding their ground for now.

 

U.S.: Inflation too broad-based

Several observers certainly breathed a sigh of relief when the U.S. inflation data were released yesterday, as methodological revisions resulted in figures that were much lower than expected, both for the headline PCE and the core PCE.

Changes in how prices for computer software and accessories, portfolio-management fees, and legal services are compiled indeed lowered annual core inflation by no less than 36 basis points—significantly more than economists had anticipated—leaving this measure three tenths of a percentage point below consensus expectations (3.0% vs. 3.3%).

The revision also helped narrow the gap that had recently widened between core inflation as calculated by the PCE and the CPI, bringing it down from 0.9% in July to 0.6% in August.

Although welcome, this revision has not fundamentally altered our view of the inflation outlook in the United States. With domestic demand still being fueled by the AI investment boom, we believe it will be difficult to bring inflation back to target without multiple rate hikes by the Fed. Labour market tightness is another factor to consider, as any acceleration in wage growth would threaten to intensify price pressures in the services sector.

But more fundamentally, it is the highly widespread nature of current inflation that leads us to believe further rate hikes are likely. As shown in today’s Hot Chart, the proportion of PCE components with an annual growth rate exceeding 3%—an indicator frequently cited by Fed Chairman Kevin Warsh—remains well above its long-term average (51.3% versus 35.3%). The same is true for components rising at a rate above the central bank’s 2% target (64.8% vs. 50.3%).

These two measures suggest that price pressures are currently not limited to the components most directly affected by the crisis in the Middle East. In an economy that continues to grow at a rate above its potential, demand-driven inflation is also a factor and will be more difficult to curb, especially after five years of inflation above the 2% target.

Rising Yields Are Wreaking Havoc on Stocks Outside the AI Trade

After the 10-year Treasury yield rose as high as 5.34% for the first time since 2002, stock traders are fiercely debating when the selloff in bonds will start to trigger pain for a resilient US stock market.

Under the surface, however, the spike in rates is already wreaking havoc.

While the S&P 500 Index is less than 2% from a record, everything from interest-rate sensitive small-cap stocks to banks and utility companies are getting battered. And many of the most speculative corners of the market — like unprofitable technology companies and those with the weakest balance sheets — trail the equity benchmark since the Federal Reserve hiked interest rates last month for the first time in three years to cool inflation.

“Most parts of the market are at least 5% off their highs, let alone segments of the market that are down 15-plus percent,” Dan Suzuki, global investment strategist at iCapital, told Bloomberg TV. “A lot of that has to do with the higher interest rates and the tightening of financial conditions that comes along with that.”

It’s a unique moment for the US stock market, which is being held aloft at the index level by the artificial-intelligence trade while at the same time staring down the type of circumstances — from mounting geopolitical risks to rising interest rates and US midterm election uncertainty — that historically have led to turbulent markets. (…)

E.G.:

• The S&P 500 Equal-Weight Index is down 6.0% from its Aug. 14 peak.
• The median stock is down -17%.
• 204 companies, or over 40% of the index, are more than -20% below.
• The Russell 2000 Index is down 8.5%.
• The KBW Nasdaq Bank Index is down 12%.
• The S&P 500 Utilities Sector is down 17% since February.
• Citadel says that MSFT, NVDA, AAPL and META alone added about 300 points to the S&P in Q3, more than 200% of the index’s total gain. The other 499-ish stocks together subtracted about 150 points (Zerohedge)

Canada, EU plan to link next-gen payment systems, easing transactions

Canada and the European Union plan to link next-generation payment systems to enable faster cross-border transactions, according to a draft joint statement prepared for a summit between Ottawa and Brussels later this month.

This will help remove obstacles to business and investment between the two jurisdictions, according to the statement, an early version of a summit communiqué that was viewed by The Globe and Mail. It adds that the new partnership will be called an “Alliance for the Future.”

The draft statement doesn’t detail what next-generation payment systems include, but this term has been used by others to refer to a major upgrade of a country’s core payment infrastructure, usually built around real-time payments. The core infrastructure is a central set of systems that clear and settle payments between financial institutions.

Canada and the EU are working to modernize the electronic systems that their businesses and people use to move money from place to place.

Both have identified the United States’s sway over the current generation of payment systems as a risk, given that Washington has grown increasingly unpredictable and protectionist under President Donald Trump.

Earlier this month, Prime Minister Mark Carney identified a country’s control over payment systems as a feature of modern sovereignty. In an address to the European Parliament on Sept. 17, he said Canada and Europe should “secure our strategic autonomy” through co-operation in strategic capabilities including “critical minerals, defence industrial capacity, AI and compute, energy security, space, and payments.”

Mr. Carney is welcoming EU officials in Montreal at the end of October to begin to define a new relationship with Brussels – one that European Commission President Ursula von der Leyen has said could make Canada an “associate member” of the 27-country bloc. (…)

The U.S.’s power over international payments was demonstrated in 2025 when Mr. Trump imposed sanctions on Winnipeg-born International Criminal Court judge Kimberly Prost over her work on a case involving American troops in Afghanistan. The U.S. sanctions left Ms. Prost unable to use most credit cards or multinational services such as Amazon or airlines. (…)

The draft statement shows that Canada and the EU plan to announce that they’ve completed a Digital Trade Agreement “to allow for faster, lower-cost secure digital trade and transactions” and that they plan deeper co-operation on critical minerals.

It says Ottawa and Brussels plan to announce that Canada and the European Investment Bank have “completed negotiations of an agreement that will facilitate European Investment in critical Canadian resources, in particular, critical minerals.” (…)

• Ottawa designates West Coast pipeline a project of national interest

Ottawa designated a proposed pipeline to the West Coast from Alberta a project of national interest on Thursday (…).

It marked the first official designation of a project of national interest under the Building Canada Act, which provides an accelerated pathway through regulatory approvals with the support of the federal government. (…)

Pacific Link is a key part of Mr. Carney’s suite of policy changes that aim to reset federal relations with Alberta and diversify Canadian exports away from the United States. It would carry one million barrels of oil a day to the coast, allowing Alberta oil to access more international markets and garner higher prices. (…)

  Respectfully Yours!

Q: You said that Iran cannot have nuclear weapons. Why not? North Korea can have nuclear weapons.

Trump: Ahh because you had a different president. Kim Jong un. He’s a friend of mine. He likes Trump. I like him. As long as I’m around, he’s going to be fine. You know why? He respects me. (@Acyn via ZH)

The U.S. Economy Is Accelerating Evidence keeps coming that investment and growth are picking up.

The WSJ Editorial Board:

(…) the Commerce Department on Wednesday made an unusually large upward revision in its economic growth estimate for the first half of the year. Might rising yields on the 10-year Treasury reflect accelerating economic growth?

The Commerce Department raised its GDP growth estimate for the first quarter to 2.5% from 2.1%, as well as for the second to 2.2% from 1.5%. These large revisions reflect newly available data as well as updates to annual benchmarks that include refinements in methodology since 2021.

The upward revisions to real GDP growth stem partly from reduced inflation estimates. But the bigger story is that business investment and consumer spending have been stronger than economists thought.

Business investment was revised up half a percentage point to 9% thanks to higher spending on intellectual property and structures tied to AI. Commerce says data centers drove the increase, while information processing equipment contributed to stronger consumer spending.

Admissions to spectator amusements also buoyed consumer spending during the second quarter. A World Cup dividend? Regardless, higher gasoline prices don’t seem to be restraining consumers. Consumer spending has been growing faster than personal incomes in recent quarters, perhaps in part owing to the wealth effect from a booming stock market. Fidelity recently reported that the number of Americans with more than a $1 million in the company’s 401(k)s surged 19% during the second quarter to a record 769,000.

Americans can thank the AI boom, assisted by the GOP tax bill, for lifting corporate profits and equity prices. Corporate profits in the second quarter rose 20.8% from a year earlier. Even if some company valuations are stretched, increases in stock prices are broader than a couple of years ago when indexes were driven by the so-called Magnificent Seven.

Net exports subtracted 1.1 percentage points from GDP in the calculation, as AI companies imported more chips and equipment for their data center build-out. But this is a positive for U.S. domestic investment and growth. Imports aren’t a sign of economic weakness. (…)

By the way, faster economic growth has buoyed tax revenue, which increased 3% during the first 11 months of this fiscal year. Declines in corporate tax revenue owing to the tax bill were more than offset by income tax revenue, which increased 8% ($189 billion) after accounting for carve-outs for tips, overtime, etc.

The press has been in a panic over the rising yield on the 10-year Treasury, which has crept up 100 basis points this year to 5.29%. The conventional wisdom is that higher energy prices and expectations of more debt issuance are the culprit, but faster growth and competition for capital are contributing. Estimates for third quarter GDP growth have also been rising as September looks strong. (…)

• Growth, Inflation Figures Show Signs of an Economic Pickup Second-quarter GDP got big upward revision and inflation remained firm in August

(…) A key metric of underlying growth trends, real final sales to private domestic purchasers, was also tweaked higher, to 4.6%.

Meanwhile, the inflation metric known as the personal-consumption expenditures price index rose by 3.4% over the past 12 months, the Commerce Department said in a separate report Wednesday, level from a month earlier.

In August alone, price increases accelerated. The overall index rose by 0.3%, and the core version that excludes food and energy prices rose by 0.2%, faster than the July readings.

That acceleration came despite a tweak to the PCE inflation formula that otherwise pulled down annualized inflation readings recorded in recent months. To address mismeasurement concerns, the Bureau of Economic Analysis changed how three price categories are tabulated—legal services, investment services and computer software—and applied the change retroactively. (…)

Upward revisions to the investment category—which includes construction—emphasize how important the build-out of AI infrastructure has been to economic growth. And an increase in estimates of second-quarter consumer spending underscores that with a solid labor market and strong stock returns, household finances have remained in good shape. (…)

Wednesday morning’s data also brought evidence that American shoppers are still in sound financial shape. Consumer spending increased by 0.9%, a fast climb partly driven by more spending at gas stations as gasoline prices rose. Income growth cooled a bit to 0.2%, from 0.3% a month earlier.

• Fed’s Williams Hints Next Rate Increase Can Wait Remarks could reset expectations for central bank’s next move at a meeting in four weeks

A top Federal Reserve official suggested Tuesday that the central bank could wait until December before raising interest rates again, pushing back against market bets on a follow-up increase next month.

The remarks from New York Fed President John Williams carry particular weight because as vice chair of the Fed’s rate-setting committee, he has typically sought to reflect the views of the committee’s center of gravity rather than stake out his own position.

Inflation remains too high, and another rate increase “late this year” might be appropriate, Williams said. But for now, the Fed can likely take time to review additional data before tightening policy further, he said.

“With the policy action we took at our September meeting, there is no need for urgency,” Williams said in a speech in Buffalo, N.Y. (…)

Williams’s relatively precise signals were notable because Warsh has renounced the kind of verbal cues his predecessors used to shape investors’ expectations ahead of policy meetings. That approach carries a risk: If markets come to expect a move officials aren’t prepared to make, the Fed must choose between surprising investors and following through on an increase it might think isn’t necessary. Williams’s comments Tuesday could help the central bank avoid that bind. (…)

Other Fed officials who, like Williams, typically vote with the Fed’s policy consensus, have signaled in recent days that they think rates should rise further, without laying out a particular timeline.

In a speech Tuesday, Fed governor Michael Barr said “further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion,” but didn’t specify his view of the urgency of a further rate increase. Governor Lisa Cook outlined a similar perspective in a speech Monday.

By the time they meet in October, Fed officials will have one more month of labor-market data in hand—the September jobs report, due Friday—and a September inflation update coming in two weeks.

Goldman Sachs: “We are pushing back the second hike in our forecast to December, and we see a strong chance that the FOMC will ultimately conclude that additional rate hikes are unnecessary.”

But Ed Yardeni points out that the 2Y Treasury yield remained 100bps above the federal funds rate today and that Federal funds futures are pricing in three to four 25bps rate hikes over the next 12 months, including roughly two over the next six months.

Ed argues that the inflation genie is not about to find its bottle yet:

The key point is that much of the recent decline in core PCED inflation reflects revised measurement procedures rather than a genuine improvement in underlying inflation.

Indeed, despite the methodological changes, the report’s details point to sticky underlying inflation. Goods PCED inflation rose to 3.6% y/y in August from 3.3% in July, partly reflecting a 4.1% m/m jump in gasoline prices. Tariffs and the AI buildout added further pressure: prices for computers and peripherals surged 3.8% m/m, while toy prices rose 2.0%.

Looking ahead, tariff pass-through and AI-related demand should keep goods inflation elevated, while the renewed rise in oil and refined-product prices in September adds another source of upward pressure.

The supercore inflation rate isolates some of the stickiest and most wage-sensitive parts of the inflation basket. The measure remains well above a pace consistent with the Fed’s 2% target. More importantly, it has been moving higher since October 2025.

Spending growth accelerated since March 2026, not because income grew faster but because Americans strongly dissaved:

Ed expects this to continue:

The surge in household net worth relative to disposable income is causing consumers, especially Baby Boomers, to reduce their savings rate. August’s saving rate was revised meaningfully higher, but still fell to 4.1%, the lowest since November 2022. We expect it to decline further as more Boomers retire. Their labor income drops to zero when they do so, but their sizable accumulated wealth lets them keep spending.

• The AI wealth effect (Axios)

Americans’ wealth jumped by $12.8 trillion in the second quarter, led by a nearly $11 trillion gain in stock holdings and other financial assets, Axios Markets author Emily Peck writes from new Fed data. That’s the biggest single quarterly increase, in dollar terms, on record.

The AI boom-fueled wealth surge is propelling spending in the U.S. economy. Half of all growth in consumption is being driven by those effects, says Krishna Guha, head of economics at Evercore ISI.

Data: Federal Reserve. (Includes securities held indirectly through mutual funds, defined-contribution pension plans and variable life insurance/annuity products.) Chart: Emily Peck/Axios

AI is the main driver of this reacceleration.

Inflation?

Core PCE rose 0.25% MoM), +3.1% a.r. and 3.0% YoY. The SuperCore PCE (Services ex-shelter) reversed its recent drop on a YoY basis, surging 0.4% MoM to 3.45% YoY.

Some also argue that higher diesel costs will shortly hit consumer inflation.

• US oil industry warns diesel prices will not return to normal for a year

Diesel prices will not return to normal for more than a year, according to US oil and gas executives surveyed by the Federal Reserve Bank of Dallas. Almost half of those polled expect diesel prices will take more than four quarters to return to 2025 levels, according to the anonymous survey of 100 oil and gas companies. (…)

“Diesel is the mother’s milk of the economy,” said one respondent from an oil and gas support services company. “We are just starting to see the impact on the wider economy.”

• China Cancels Some Fuel Shipments to Support Domestic Supply

Chinese fuel exporters have canceled some oil-product cargoes slated for export in October, as Asia’s top consumer prioritizes domestic supply during an extended period of upheaval in global energy markets.

Shipments including gasoline and diesel have been affected, according to people involved in shipping and purchasing the cargoes, who asked not to be identified as they aren’t authorized to speak publicly. The prompt spread for gasoline and diesel in Asia — the gap between immediately available cargoes and those for purchase next month — stretched higher late Wednesday as traders learned the news, indicating a tighter market.

(…) any interruption to Chinese exports is closely monitored by buyers and traders at a time when the world is grappling with a supply crunch, thanks to disruptions in Russia and the Middle East. (…)

China’s focus has only increased as the Northern Hemisphere heads into winter, with little sign of fuel exports returning to normal in the Persian Gulf or Russia, which has just extended a diesel export ban. (…)

FYI, from Ian Harnett, co-founder and chief investment strategist at Absolute Strategy Research in the FT:

(…) Take a look at the gap between US Treasuries and US markets earnings yield — the earnings per share of companies divided by the share price. While the US 10-year yield is up to more than 5 per cent, the equity market has an earnings yield of only 3.9 per cent, and the dividend yield is back to its 2000 lows at 1.1 per cent.

Even if you include buybacks alongside dividend income, the total equity yield is just 2.6 per cent — again, close to the 2000 lows.

But it is also this divergence in relative valuations where the investment opportunities arise for longer-term investors with patient capital. While bondholders can now get a 5 per cent return if they hold their 10-year Treasuries to maturity, the kind of returns that equity holders might expect over the same 10-year period is close to zero, based on historic precedent as indicated by the cyclically adjusted price-earnings model developed by economist Robert Shiller.

While this still may not be enough of a return premium for some investors, given the excitement surrounding the prospects for AI-related stocks, it does create more optionality for long-run asset allocators to invest in something other than equities.

AI is driving the economy and the stock market, both driving consumer spending but also inflation and bond yields and, perhaps, Fed funds rates. We sure need strong earnings.

But the stock market has also become K shaped as David Rosenberg explains: “The median S&P 500 stock is down more than -15% from the 52-week highs, and yet everyone thinks the stock market has become invincible and impervious to the bond market shock. More than 70% of the S&P 500 is at least -10% below its highs. (…) The KBW Bank Index sagged -1.0% [yesterday] and is down -12.4% from the summertime high.”

Consumer Discretionary, Industrials, Financials, Retail, and Real Estate sub-indices combined are down 8.6% since early August.

MarketWatch concurs:

According to MarketWatch calculations, 80% of S&P 500 companies are at least 10% below their 52-week high — in other words, they’re in a correction — and 39% are at least 20% below.

“So there’s all this rot that’s in the S&P 500, but it’s not in plain sight, [and] you’ve got to wait for the branch to fall off to figure out that the market’s hollow, just like the tree was hollow,” said Gundlach, who is also worried that investors may be facing contagion from a separate set of assets.

“I feel like there’s a direct parallel to all of this in the private markets,” said the investor best known for calling the U.S. housing bust in 2007.

He explained a growing circular investment, in which private-equity firms buy a private-credit unit and then buy an insurer, which in turn buys the loans from the affiliated private-credit company.

Gundlach said those private-equity and private-credit firms keep assuring investors there are no problems, and their quarterly figures often won’t reveal any issues. However, he pointed to one private-credit fund that held assets marked at $100 late last year, then lowered them to between $77 and $78 by the first quarter, meaning the underlying portfolio had dropped in value by nearly 23%. And those funds hold thousands of diversified loans, therefore revealing major, but hidden, losses, he said.

“I think that all these things are creating an awareness that’s building that everything isn’t just fine,” Gundlach said. (…)

He noted that over a dozen prior S&P 500 pullbacks since 2000, the ICE Dollar Index has gained 8% to 10% each time, but after the April correction of 2025 the dollar went down for the first time. “That’s because people realize that we’re in a different regime and so the dollar will not go up in the next recession,” he said. “[I]t will go down.”

Korea Disputes Trump’s Claim It Agreed to Invest in Alaska LNG

South Korea has pushed back on the Trump administration’s announcement that the country would invest $54 billion in a liquefied natural gas project in Alaska, saying it had agreed to do so only if the long-stalled venture proves economically feasible.

“What the Korean government agreed with the US is that the Alaska project will proceed only if it is commercially viable,” Industry Minister Kim Jung-kwan said in a televised briefing on Thursday. Seoul had expressed its regret to US Commerce Secretary Howard Lutnick “that what was reported today went beyond what had been agreed,” he said.

President Donald Trump had earlier said Korea would invest in the Alaska project at a White House event on Wednesday. It was part of a pledge by Seoul to invest $200 billion in American energy projects following last year’s US-South Korea trade deal.

The Alaska LNG venture has struggled for decades to secure the binding long-term contracts and investments needed for it to move forward. The project is massive in scale, requiring the construction of an 800-mile (1,287 kilometer) pipeline across the state. Alaska LNG has, however, signed non-binding sales agreements with companies in countries including South Korea, Japan and Taiwan. (…)

If South Korea does participate in the project, the US has agreed to offer it LNG at favorable prices, Kim said.

Under the broader investment agreement, South Korea has insisted that projects meet a commercial viability test before funds are deployed. The test was a central issue in negotiations over how Seoul’s $350 billion US investment pledge would operate. As well as investing in the American energy sector, Seoul agreed to put $150 billion into US shipbuilding.