Sunday reading - Krugman and Zitron on the Bubble markets

Somehow, the US stock market was still reaching record highs in a week where President Trump tried to fire Fed Board members and tariffs were being put back in place. Shouldn’t the uncertainty of monetary policy and future costs of business lead people to bail out until we know the future course?

Economist Paul Krugman put out a theory on that this week. He says this is part of a history where markets tend toward inertia, where no one wants to admit that what they’ve bought into is set to crumble.

The muted market reaction to The Crazy doesn't tell you much about what will happen. Markets almost *never* react in advance to large but only potential disruptions. paulkrugman.substack.com/p/why-arent-...

[image or embed]

— Paul Krugman (@pkrugman.bsky.social) August 28, 2025 at 11:09 AM

My read of economic and financial history is that market pricing almost never takes into account the possibility of huge, disruptive events, even when the strong possibility of such events should be obvious. The usual pattern, instead, is one of market complacency until the last possible moment. That is, markets act as if everything is normal until it’s blindingly obvious that it isn’t.

The inimitable Nathan Tankus summarizes this by saying that the market is not, as stylized economic models would have us believe, a mechanism that pools the knowledge and informed judgment of millions of investors. It is, instead, a “conventional wisdom processor.” That is, it reflects views that seem safe to hold because many other people hold them — and the crowd only abandons those views when they become blatantly unsustainable.

John Maynard Keynes said something similar in Chapter 12 of his General Theory of Employment, Interest and Money. Market investors, he argued, pay little attention to the question of what assets are truly worth. Instead, they worry mostly about the market value of those assets a few months in the future. In a memorable albeit sexist passage (it was 1936), he declared that

professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view … we devote our intelligences to anticipating what average opinion expects the average opinion to be.

Krugman goes on to say that we had numerous signs that the housing market was in a significant bubble in the mid-2000s, and likely to crash sooner than later. But the Great Recession didn’t start until late 2007, and Krugman says this is a classic example of no one wanting to be the first to admit the ship is taking on water. So everyone shut up and hoped the money kept rolling in, until they couldn’t ignore the bad stuff any longer.

So if the conventional wisdom is that economic conditions will remain more or less normal despite highly abnormal policy, markets will remain calm until the illusion of normality becomes unsustainable. At that point market prices may “change violently.” The current technical term for this phenomenon is a “Wile E. Coyote moment” — the moment when the cartoon character, having run several steps off the edge of a cliff, looks down and realizes that there’s nothing supporting him. Only then, according to the laws of cartoon physics, does he fall.

With that in mind, let's include this graph from Krugman's article, which shows the Case-Shiller index of housing prices for the 2000-2010 period.

And now let's see where the housing market is today.

Oh, an increase of nearly 70% in 6 years. But things are different this time, right?

Writer and podcaster Ed Zitron has a similar thought on the "FOMO/can't leave" mentality, when discussing the added investment in Artificial Intelligence and related technology stops, and leads to the bursting of a Bubble that is one of the few sources of growth in the US economy these days. Zitron says the breakdown will be slow for a while, then speed up as more businesses try to escape.

The AI bubble is bursting, and the things that will accelerate the collapse are NVIDIA's growth slowing, the death of AI startup funding, the collapse of a major AI startup, big tech turning on AI, and a collapse of neoclouds like CoreWeave. www.wheresyoured.at/ai-bubble-20...

[image or embed]

— Ed Zitron (@edzitron.com) August 27, 2025 at 10:04 AM

For the bubble to burst, I see a few necessary conditions, though reality is often far more boring and annoying. Regardless, it's important to know that this is a bubble driven by vibes not returns, and thus the bubble bursting will be an emotional reaction.

This post is, in many respects, a follow-on to my previous “pale horse” article (called Burst Damage). Many of my original pale horses have already come true — Anthropic and OpenAI have pushed price increases and rate limits, there is already discord in AI investment, Meta is already considering downsizing its AI team, and OpenAI has done multiple different "big, stupid magic tricks," the chief of them being the embarrassing launch of GPT-5, a "smart, efficient router" that I reported last week was quite the opposite....

I also think it might "take a minute," because "the bubble bursting" will be a succession of events that could take upwards of a year to fully happen. That’s been true for every bubble. Although people associate the implosion of the housing bubble with the “one big event” of Lehman Brothers collapsing in 2008, the reality is that it was preceded and followed by a bunch of other events, equally significant though not quite as dramatic.

Since no one wants to admit that there is no sustainable growth behind the Bubbles in both AI and the stock market, because that would cause disruption and losses for a lot of people, few want to be the first mover off the boat. In addition, the fear of missing out on more asset price growth and/or not having any option for a stable future income beyond a 401k/pension fund or home price (me included) keeps people invested in markets and an economy that may not deserve it.

That sure seems to sum up things these days, doesn’t it? It's a good theory as to why bond and currency markets have yet to freak out over Trump trying to plunge interest rates in a time when budget deficits (and the supply of bonds) are set to explode in the next few months and years. Consumer inflation is already likely to pick up as tariffs finally start to be passed on by businesses, and a tanking dollar and lower rates would likely speed that further.

It also helps explain to me why people keep pumping up tech companies when the amount of money coming in is billions short of the amount of money that these companies are feeding into the new infrastructure and other companies that promise the "next great thing in productivity". Much like we saw in 1999 and 2000, the amount of money flowing in isn't going to pay off in many cases, or consumers sure aren't going to see where it's an improvement over what we already have (and/or the "new developments" make the user expereince worse . Right, Alexa?), and a lot of wreckage will happen in the wake of the implosion that follows as some of the larger players pull the plug.

Higher LFB revenues can help pay for extra state costs of Tax Scam 2.0

Near the end of this week, the Legislative Fiscal Bureau told Wisconsinites we ended up with slightly more revenue than what was projected back in May.

Preliminary information regarding general fund tax collections for the 2024-25 fiscal year is now available. According to the Department of Revenue (DOR), collections totaled $22,362.6 million in 2024-25, which was 4.8% higher than the previous year.

This office's final estimate of 2024-25 tax collections, projected on May 15, was $22,274.3 million. Actual collections were $88.3 million, or 0.4%, above the estimated amount.

That’s good and needed, as the extra $88.3 million will give a little extra breathing room by boosting how much is carried over into this budget.

And because the state budget that was signed in early July only had $770.5 million of cushion built into it when it was signed into law, this allows for a bit more room to avoid having to make more budget adjustments. The now-$858 million cushion will be especially crucial in case we fall into a recession in the next 2 years, and we have a budget shortfall due to a lack of income and higher needs for assistance.

The $88 million+ beat on revenue estimates came almost entirely from income taxes ($31.1 above estimates) and corporate taxes ($51.1 million over estimates). That would indicate higher incomes and corporate profits than expected, so I have confidence that Wisconsin’s economy was holding up at least through June.

This state will likely need all the fiscal help it can get, because the Evers Administration mentioned this week that Big Bunch of BS from DC is going to push a lot of additional costs down to the Wisconsin state government. Those costs will include $70 million between now and when this budget ends on June 30, 2027, and another $214 million in future budgets. Here's where the Evers Administration says some of those shifted costs would come from.

$72.4 million per year to offer employment training services to Medicaid members to meet the red tape work requirement, effective December 31, 2026, similar to the services provided to FoodShare members through the FoodShare Employment and Training Program (FSET).

$14.6 million per year in increased FSET costs because more adults will need to meet the work requirement, in addition to systems updates and costs associated with implementing the new red tape work requirements for FoodShare members, which were effective immediately when the bill was signed on July 4, 2025....

$11.4 million per year to hire additional FoodShare quality control staff at the state and county level to review cases before they are confirmed to identify and address errors in order to achieve and maintain a payment error rate under 6 percent (the Evers Admin says having an error rate over 6% would cost over $205 million a year, so they say this would be a good investment) ....

$43.5 million per year to make up for the reduction in the federal share of costs to administer the FoodShare program, which is effective October 1, 2026. These costs are expected to grow over time.

You can click here for a more detailed list of how Tax Scam 2.0 will increase spending and regulation for the State of Wisconsin, but I'll just say that it's typical Trump/GOP to get headlines by appearing to cut taxes at the federal level, and then try to avoid accountability by pushing the higher taxes and spending cuts down the state level.

There wasn't much for new staffing in the Wisconsin state budget for the chages that Tax Scam 2.0 was going to impose onto them, so this might be something to clean up for the 6-8 months that the State Legislature will be available for in the rest of this session. And certainly it seems like something Democrats in the Legislature should be pushing on, and reminding both the voters and their GOP colleagues at the state level that we are going to have to pay for the red tape that Trump/GOPs in DC have caused.

Inflation above the target and incomes/spending solid for July.

With a Fed meeting looming in less than 3 weeks, the financial news was especially interested in the inflation part of today's income and spending report.

The personal consumption expenditures price index showed that core inflation, which excludes food and energy costs, ran at a 2.9% seasonally adjusted annual rate, according to a Commerce Department report Friday. That was up 0.1 percentage point from the June level and the highest annual rate since February, though in line with the Dow Jones consensus forecast.

On a monthly basis, the core PCE index increased 0.3%, also in line with expectations. The all-items index showed the annual rate at 2.6% and the monthly gain at 0.2%, also hitting the consensus outlook.

Not bad, not great. Pretty much what we’ve been seeing in the last few months, tariffs or no tariffs (which doesn’t make much sense that the tariffs haven't changed inflation, but costs for businesses didn’t spike until July). While it’s above the magic 2% mark that we keep hearing that the Fed wants inflation to be at, a 2.5%-3% isn’t a major price increase that handcuffs the overall economy to me.

The same report also showed that the 2/3 of the US economy based on consumer spending kept moving along in July, and income growth continued at a decent pace.

Along with the inflation moves, consumer spending increased 0.5% on the month, in line with forecasts and indicative of strength despite the higher prices. Personal income accelerated 0.4%, rounding out a report that saw all figures hit the consensus outlook.

Stock market futures remained negative after the release while Treasury yields held gains.

But the decline was a relatively small 92 points on the DOW, and it was a decent start to Q3 in the real economy. That said, I will caveat that more than ½ of the consumer spending growth in July can be chalked up to untariffed auto sales and finance/insurance.

But with consumer spending and incomes slightly above the rate of inflation, and the biggest increase in employee compensation in 8 months, which indicates an economy that was still in expansion mode last month.

That data came a day after a revision to Q2’s GDP report which indicated stronger economic growth in Spring time than we thought - up to 3.3% from the original report of 3.0%.

The U.S. economy grew faster than initially thought in the second quarter, in part driven by business investment in intellectual property such as artificial intelligence, but tariffs on imports continued to cloud the picture.

The upgrade to gross domestic product reported by the Commerce Department on Thursday also reflected upward revisions to consumer spending as well as business investment in equipment. That resulted in a measure of underlying domestic demand also being revised higher….

The GDP revision reflected upgrades to business spending on intellectual property products, now estimated to have expanded at a 12.8% rate, double the initially estimated 6.4% pace and the fastest in four years.

Growth in business investment in equipment was revised up to a 7.4% pace from the 4.8% rate estimated last month.

But let’s also remember that most of that Q2 GDP growth was due to the unwinding of Q1’s Great Import Surge to get ahead of those tariffs. "Regular”, private-sector growth still went down last quarter, although the revisions lessened that decline.

That chart doesn’t mention that 1/3 of that remaining growth was in “software investment”, which reiterates that a lot of our economy is stagnant, and that it won’t take much for several sectors to fall into recession.

But an overall recession doesn't seem to have happened in July, based on the data we've been seeing. And if the Fed hadn't been so set on cutting rates in September, you'd wonder why they would do that, unless the Fed knows that last month's good economic data is the last positive one that we will see for a while. At least in the real world.

Lower gas usage drives gas prices down in 2025. Time for Trump/GOP to stop that trend!

One thing that has kept inflation from being worse in 2025 is because gas prices have been at their lowest levels since the COVID pandemic. It has been consistently below $3 a gallon for much of this year in Wisconsin, and this chart from AAA shows that there was no spike in prices in Spring or Summer like there usually is.

So why has this happened? A big reason why is that we aren't using as much gas as we used to. Though there are millions more people in America today than there were in the 2010s, you can see that the amount of gasoline used has consistently been less in the 2020s than in the last half of the prior decade, even as pandemic restrictions on travel have been largely gone in the last 4 years.

And this has resulted in gasoline being more plentiful in 2025 than in any non-COVID year other than 2022, when gas was approximately 50% higher than it is today.

With this lower demand leading to higher available supplies of gas, no wonder why prices at the pump are staying under control (well, other than the 25-cent increase we in Wisconsin saw in the last week due to flooding at a refinery in NW Indiana).

The reason I bring this up is that tax credits for purchasing various alternative energy vehicles are going away at the end of next month, due to provisions in Trump/GOP's Tax Scam 2.0. This may endanger future growth in US purchases of electric and hybrid vehicles, which have increased from just over 718,000 in 2019 to nearly 3.18 million in 2024.

Perhaps the Biden-era incentives and incubations for more of these types of autos that don't fully use gas have made more Americans want to buy these types of vehicles, and more assembly lines are set up for these types of vehicles than there was in 2019. So maybe we won't see sales of these types of vehicles fall off after September 30, and maybe US demand for gasoline will stay at the lower levels that they are at today.

But if that doesn't happen, and people turn back to using more gas with the vehicles that they have, then the relief that so many have been able to feel at the pump in 2025 might go away in 2026 and beyond, and the inflationary environment we are already in will have added price pressures. Which sure as hell isn't what some Americans thought they were going to get with Donald Trump in office (SUCKERS!).

Not real - Tax Scam 2.0 ending taxes on Social Security payments. Still real? Looming Medicare cuts

I was among millions of Americans who got an odd email from the Social Security Administration after Trump/GOP passed Tax Scam 2.0 into law. It was soon edited on the web site, but I still have the original email.

The Social Security Administration (SSA) is celebrating the passage of the One Big, Beautiful Bill, a landmark piece of legislation that delivers long-awaited tax relief to millions of older Americans.

The bill ensures that nearly 90% of Social Security beneficiaries will no longer pay federal income taxes on their benefits, providing meaningful and immediate relief to seniors who have spent a lifetime contributing to our nation’s economy. “This is a historic step forward for America’s seniors,” said Social Security Commissioner Frank Bisignano. “For nearly 90 years, Social Security has been a cornerstone of economic security for older Americans. By significantly reducing the tax burden on benefits, this legislation reaffirms President Trump’s promise to protect Social Security and helps ensure that seniors can better enjoy the retirement they’ve earned.

The new law includes a provision that eliminates federal income taxes on Social Security benefits for most beneficiaries, providing relief to individuals and couples. Additionally, it provides an enhanced deduction for taxpayers aged 65 and older, ensuring that retirees can keep more of what they have earned.

I’m well over a decade away from collecting Social Security, but I have an account with ssa.gov to check up on my benefit situation, so I suppose that’s what got me on this list. However, I’d tracked the Big Bunch of BS enough to know that Social Security recipients still would have to pay taxes, so what’s with this claim?

It's a classic “lie by omission” move, where other parts of the bill may cause seniors to not have to owe any federal income taxes, but not because taxes on Social Security taxes have been eliminated.

One of Wisconsin Senators was among a group that was calling BS on the Trump hacks’ deceptive mailing last month.

U.S. Senators Tammy Baldwin (D-WI) and Ron Wyden (D-OR) led a group of their colleagues in demanding that the Social Security Administration (SSA) stop peddling lies about the Republican reconciliation bill using the agency’s email platform, which reaches tens of millions of Americans.

The Republican reconciliation bill does not amend, reduce, or eliminate federal taxes on Social Security benefits. Contrary to the release’s claim that taxes would be eliminated on 90% of benefits, about half of beneficiaries will still owe some amount of income tax on their benefits. The bill also does not change tax filing requirements for people receiving Social Security benefits. The Trump Administration’s distribution of misleading and blatantly inaccurate information could upend the lives of millions of American seniors who depend on Social Security benefits. Inaccurate information could lead to Americans making benefit claims against their best interests or even missing payments on taxes they owe….

On July 3, SSA sent a mass email and issued a press release falsely announcing that the Republican reconciliation bill would cut taxes on Social Security benefits. The agency doubled down on those lies by burying its misleading language on its website and keeping millions of Americans who received the initial email in the dark. Commissioner Bisignano has abandoned his promise to the Finance Committee and to the American people that, under his leadership, SSA would not become a partisan agency subject to the whims of Trump.

“Rather than focusing on improving customer service, you are using your position as Commissioner to stroke Donald Trump’s ego and peddle lies on his behalf. We urge you to retract SSA’s July 3 statement and issue a correction–on SSA’s website and via email for ‘my Social Security’ account users–clarifying the federal tax treatment of Social Security benefits,” Baldwin and the Senators continued.

You can check out the analysis from the Tax Policy Center yourself, but as you'll see, there won't be a major difference in how many Social Security recipients will have $0 taxes to pay on their benefit income this year.

That won't mean this move to give seniors a tax break won't have an effect - one well beyond the additional 3.5% of Social Security beneficiaries who now won't have any taxes to pay on their benefits this year. It's one that could hit millions of Americans planning to collect Social Security benefits in future years, as Citizens for a Responsible Federal Budget notes that this Big Bogus Bill speeds up potential cuts to Social Security and Medicare benefits.

OBBBA would impact Social Security and Medicare indirectly, mainly by reducing the revenue collected from the income taxation of Social Security benefits, which is deposited into the Social Security and Medicare trust funds.

Under current law, Social Security benefits are 50 percent taxable for seniors with over $25,000 ($32,000 for couples) of annual income, and 85 percent taxable for seniors with over $34,000 ($44,000 for couples) of income. That 50 percent is deposited into the Social Security trust fund, and the additional 35 percent into Medicare’s Hospital Insurance (HI) trust fund…

OBBBA would not only extend most of the 2017 tax cuts but also expand them and add further tax cuts on top of them. Of particular relevance for Social Security beneficiaries, the Senate version of OBBBA would increase the total standard deduction for many senior couples by over $13,000 (including a temporary $12,000 increase in the additional senior deduction) in 2026, to over $47,000. This would reduce the number of seniors paying taxes on their benefits and reduce the marginal rate at which some of their benefits were taxed.

We estimate that the extension and expansion of the 2017 tax cuts, the expanded senior deduction, and other OBBBA changes would reduce total taxation of benefits by roughly $30 billion per year. This would be enough to accelerate insolvency of the Social Security Old-Age and Survivors (OASI) trust fund from early 2033 to late 2032 and to accelerate insolvency of the HI trust fund from late 2033 to mid-2032.

That would be a much bigger effect on incomes for seniors and others, as lower consumption from reduced benefits would likely slow down the overall economy in a country that has more than 2/3 of it rely on consumer spending.

And it's not just Gen Xers whose later years are seeing their standards of living endangered after Trump Tax Scam 2.0. There was another omission Republicans made in this bill, and the Congressional Budget Office said earlier this month that it has yet to be fixed, leaving seniors susceptible to cuts for their earned health care benefits as early as next year.

In accordance with S-PAYGO, OMB will estimate the average increases in deficits over the 5- and 10-year periods and record those amounts on the PAYGO scorecards; OMB has not yet done so. By CBO’s estimate, the average increases in the deficits stemming from the act will total $415 billion over the 5-year period and $339 billion over the 10‑year period.

Without enactment of subsequent legislation that would offset the deficit increase, waive the recordation of the bill’s effects on the scorecard, or otherwise mitigate or eliminate the statutory requirements, OMB will be required to issue a sequestration order not more than 14 days after the end of the current session of Congress (excluding weekends and holidays) to reduce spending by $415 billion in fiscal year 2026, CBO estimates...

Under S-PAYGO, reductions in Medicare spending are limited to 4 percent— or an estimated $45 billion for fiscal year 2026. That would leave $370 billion to be sequestered from the federal budget’s remaining direct spending accounts in that year.

How Would Medicare Be Affected Between 2027 and 2034?
The 4 percent maximum reduction in Medicare spending would continue to apply to sequestration orders for years after 2026. If OMB ordered a sequestration of $415 billion for each year through 2029 and $339 billion each year from 2030 through 2034, the ordered reductions in Medicare spending would increase to $76 billion in 2034 and would total $491 billion over the 2027–2034 period (see Table 1).

Previous Tax Scams and stimulus measures have either included PAYGO waivers in the actual bill, or passed bills later not to count these allegedly limited-time measures, as the Center for a Responsible Federal Budget has tracked over the last decade, But it hasn't happened with Tax Scam 2.0 yet, which means Republicans in Congress either have to do so when they finally get back in to avoid spending cuts to another program that Trump/GOP has claimed was hands-off. Or the GOP is lying and planning to back-door these cuts through sequestration, and/or having Russ Vought and other scumbags in TrumpWorld try to take away even more tax dollars and supports that Americans have the right to receive BY LAW?

That seems like something Democrats and anyone else who gives a crap about the quality of life for seniors should be bringing to the attention of both media and the general public, and forcing Republicans to answer the question as to whether the Big Bunch of Bogusness is really an attempt to make back-door cuts to Medicare and Social Security, and will hurt older Americans a lot more than whatever help they might receive from a short-time "Senior Bonus".

Powell speech makes Wall Street go nuts. But why did it change anything?

The Federal Reserve’s Open Market Committee has held its main interest rate steady since Trump Admin 2.0 started as the threat of tariffs and higher prices arrived, ending a short run of rate cuts in the last few months of 2024.

But we’ve seen several indications that more rate cutting may be happening at the Fed’s next meeting in September, especially when job growth for May and June was revised down near zero on August 1, to go along with a subpar gain of 73,000 jobs for July.

And so a lot of attention was being paid to comments from Fed Chair Jerome Powell at a gathering of elites in Jackson Hole, Wyoming, to see what if there would be hints of what would be coming up.

In a speech that touched both on the economic outlook and the Fed's new policy framework, Powell took pains to note that risks from inflation remain "tilted to the upside," saying that tariff-related inflation pressures "are now clearly visible."

"We expect those effects to accumulate over [the] coming months," Powell said, "with high uncertainty about timing and amounts. The question that matters for monetary policy is whether these price increases are likely to materially raise the risk of an ongoing inflation problem."

Powell added on inflation that the Fed "will not allow a one-time increase in the price level to become an ongoing inflation problem."

So that means Powell and the Fed is aware of what a lot of us have been noticing in the last month – inflation is likely to pick up as companies pass on tariff costs and other higher expenses to consumers.

That was reiterated in an otherwise upbeat survey of businesses by S&P that came out this week, where all sorts of firms reported significant price pressures.

Tariffs were reported as the key driver of further cost increases in August. Companies across both manufacturing and service sectors collectively reported the steepest rise in input prices since May and the second-largest increase since January 2023. Rates of increase accelerated in both sectors. While the manufacturing cost rise was especially large, being the second-steepest since August 2022, the service sector increase was the second-highest since June 2023.

Average prices charged for goods and services rose at the sharpest rate since August 2022 as firms passed higher costs on to customers. Although goods price inflation cooled slightly for a second month in a row, it remained among the highest seen over the past three years. Service sector price inflation meanwhile was the sharpest since August 2022.

“Highest price inflation since 2022” isn’t something that you want to hear, as year-over-year inflation peaked at 9.1% in June of that year. And much of that 2022 inflation was due to gas being at $4-$5 a gallon back then, not the sub-$3 levels we've been seeing in Wisconsin these days.

Would that mean the Fed might they not cut rates next month, when most of us thought they would? Well, there’s the matter of the stalling job market.

On the labor market, Powell noted that the hiring slowdown in recent data, combined with a slowdown in the growth of the labor force, creates "a curious kind of balance that results from a marked slowing in both the supply of and demand for workers."

"This unusual situation suggests that downside risks to employment are rising," Powell said. "And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment."

Add in a Powell comment about how the Fed was likely to “adjust our policy stance”, and coked-up traders decided they heard what they wanted to hear, and believe that this would allow them to hit a jackpot.

The odds of a September rate cut jumped Friday and U.S. stocks rallied after Federal Reserve Chair Jerome Powell struck a dovish tone in his speech at the central bank’s annual Jackson Hole Symposium.

According to federal funds futures trading data, traders now see a nearly 90% chance the Fed lowers rates by 25 basis points on Sept. 17, up from 75% yesterday…

Treasury yields tumbled following Powell’s comments. The yield on the 10-year Treasury note, which influences the interest charged on all kinds of consumer loans, dropped about 8 basis points to 4.25%. The benchmark yield has seesawed between 4% and 4.5% for most of the year as investors, like the Fed, waited to see how President Trump’s tariff policies would affect the economy.

Take a guess when Powell’s comments hit the news.

So we still expect an interest rate cut to happen, as we did yesterday, whjle the Fed Chair admits that inflation is likely to reignite, and also admits that we could well see recessionary-like jobs numbers coming soon.

Maybe I’m just operating in the real world too much and not part of the one that coked-up traders live in, but I don’t see anything that should allow us to think this (lack of?) news is an extra reason to be buying stocks. At this point, all this 900-point gain will do is blow the Price-to-sales Bubble even higher, and make the inevitable deflation of this Bubble larger than it should be.

And while I’m not sure we should be cutting rates in September, I figured that the Fed would be doing so, based on public comments and soft economic data in recent weeks. But how would that rate cut change the trajectory of a staling economy? It’s not going to drive wages higher or lead to more hiring. Consumer sentiment has been on the decline and real consumer spending has been flatlining even before tariff-driven inflation hits. I can’t think that gets better as prices rise for the rest of 2025.

The real question is whether there will be additional cuts beyond this, or if inflation from tariffs, a cheap dollar, and a lack of labor supply and shortages due to a widespread deportations would quickly end and possibly reverse that loosening cycle.

That's what we call stagflation, folks. And that would stymie the Fed, and likely lead to a lot of disappointment from those same Wall Streeters that had a bout of exuberance today.

Housing construction still weak, but consumer still muddling along

Wanted to get a couple of quick updates with recent economic reports. Let's start with housing construction, which had shown significant declines in the 2nd Quarter of 2025.

While the lousy numbers of the prior two months were revised up a little, and we got a second straight month of increased housing starts, we still are sitting at the lowest non-COVID amount of housing permits in the 2020s, and at or near multi=year lows for both housing units under construction and completions.

On the positive side, we haven't seen a complete collapse of the consumer yet. July's retail sales report indicated that we were still seeing some growth, and that June's strong figures were revised up.

Retail sales rose 0.5% last month after an upwardly revised 0.9% gain in June, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, would increase 0.5% after a previously reported 0.6% rise in June.

Sales increased 3.9% on a year-over-year basis. Motor vehicles led the almost broad rise in sales, with receipts at auto dealerships advancing 1.6% after rising 1.4% in June. A rush to buy battery-powered electric vehicles ahead of the September 30 expiration of federal government tax credits helped to drive automobile sales in July, analysts at J.P. Morgan said.

So again, some of the good numbers are short-term distortions caused by Trump/GOP policy designed to mess up something that was going along just fine before they got there.

And on the price side, despite the relatively tepid numbers in July's Consumer Price Index, a sizable jump of 0.9% in the Producer Price Index showed tariffs were indeed raising costs, and consumers know those higher costs are coming their way.

The University of Michigan's Surveys of Consumers showed consumer sentiment weakened in August, with its measure of buying conditions for long-lasting manufactured goods slumping to a one-year low as concerns over purchasing power mounted.

"Underlying fundamentals are clearly softening," said Lydia Boussour, senior economist at EY-Parthenon. "In the months ahead, the drag on consumer demand is expected to intensify, with demand destruction from higher tariffs likely to become more pronounced as consumers increasingly scale back discretionary purchases to cope with rising costs."

Consumers' 12-month inflation expectations increased to 4.9% this month from 4.5% in July. The increase occurred across all three political affiliations.

But no recession yet. It'll take a serious inflation spike and/or layoffs for that to happen, and we weren't there in July. But you can see where the bad stuff might start picking up in August's data, when we get to that in the next few weeks.

PPI spikes up in July, so the tariff effect will be on your store shelf soon.

We’ve been waiting for the $20 billion+ a month in additional tariff revenue to be reflected in cost pressures, and that may finally be happening, as a report on Thursday indicated.

The Producer Price Index (PPI) for July showed inflation for businesses rose 0.9% over the prior month, well ahead of the 0.2% increase that was forecast, data from the Bureau of Labor Statistics showed Thursday. On an annual basis, prices rose 3.3%, the most since February.

"Core" producer prices, which exclude food, energy, and trade services, rose 0.6% last month, the most since March 2022 and an uptick after prices were unchanged in June. On an annual basis, core producer prices rose 3.3%, which was also the most since February.

Producer prices measure price changes from the perspective of businesses offering or selling goods and services in the economy; consumer prices measure changes from the perspective of those paying for those goods and services.

Big jump: July PPI #inflation +3.3% y/y vs. +2.5% est. & +2.3% prior … ex-food and energy PPI +3.7% vs. +3% est. & +2.6% prior

[image or embed]

— Liz Ann Sonders (@lizannsonders616.bsky.social) August 14, 2025 at 9:15 AM

That's not a good trend, and the higher margins in services and higher costs for raw matertials (intermediate costs were up even more in July, at +0.8% and +1.1% at the steps before final demand) means that prices will be even higher on store shelves in the next month or two.

Thursday's data suggests, then, that companies will not absorb all costs incurred from tariffs but will pass some of these costs on to consumers in the form of higher prices.

"While businesses have assumed the majority of tariff cost increases so far, margins are being increasingly squeezed by higher costs for imported goods," said Ben Ayers, senior economist at Nationwide. "We expect a stronger pass-through of levies into consumer prices in [the] coming months."

Well, unless you think businesses will be nice enough to eat most of those extra costs and reduce their profits and HAHAHAHAHAHA!!!! You thought I was being serious that business would eat profits to help consumers? HAHAHAHAHA!

So this PPI number means that we’re likely not falling below the 2.8% annual rate that we’ve seen in core CPI in the last 3 months (which would be just over 0.2% a month), and it'll probably much higher than that in the next 3 months. And if consumers won’t accept price increases of that level, then we will be seeing new unemployment claims go well above the 220,000-225,000 per-week level that they have somehow stayed down at so far.

And yet, the stock market refuses to admit the stagflation that we might already be in, and certainly will be coming soon. Early stock losses were shaken off with the DOW and NASDAQ barely down at the close, and the S&P ended up at a new record.

Traders trimmed their Fed rate-cut expectations for the rest of the year to about 56.7 basis points, according to data compiled by LSEG, compared with around 63 bps before the report.

But they are still fully pricing in a quarter-percentage-point cut in September.

"The implication is that the Fed is going to offer a 25-(basis point) cut in September. But it will be a hawkish cut. It's way too early still for the Fed to wish to guide the market towards an extended easing cycle," said Thierry Wizman, global FX and rates strategist at Macquarie Group.

OK, but if businesses are paying another 0.5% a month due to higher costs, how is a 0.25% cut in rates going to counteract that? How strung out on debt do we think these companies are going to get?

Especially in a time when stocks are already in a Bubble.

"U.S. stocks are pricy," said Sam Stovall, chief investment strategist CFRA Research.

The S&P 500 index is trading at a price-to-earnings ratio of 23 based on forward estimates, or a near-40% premium to its 20-year average, he said.

And that’s price-to-earnings per share, which is being pumped up by nearly $1 trillion in stock buybacks so far in 2025. Take a look at how “pricy” stocks are when compared to actual sales.

Oh, but I'm sure future sales will make this a moot point. Especially as health insurance premiums go through the roof this Fall and there isn't enough labor to pick crops in the fields because of ICE raids, with prices are set to rise even more as a result of those shortages (and fresh vegetables were already up 38.9% in July's PPI report).

There's gotta be a point when the real-world economy starts having layoffs to match the lack of demand and profits, and affecting the stock market as well. Riiiiight?

Core inflation up, with more to come. But Wall Streeters think it opens the floodgates?

With businesses reporting higher costs from tariffs and other reasons in recent weeks, it brought INFLATION WATCH to another level. And made many look to today’s report on the CPI for July as a significant piece of data on the state of the economy, as well as the outlook for the future.

The consumer price index increased a seasonally adjusted 0.2% for the month and 2.7% on a 12-month basis, the Bureau of Labor Statistics reported Tuesday. That compared with the respective Dow Jones estimates for 0.2% and 2.8%.

Excluding food and energy, the core CPI increased 0.3% for the month and 3.1% from a year ago, compared with the forecasts for 0.3% and 3%. Federal Reserve officials generally consider core inflation to be a better reading for longer-term trends. The monthly core rate was the biggest increase since January while the annual rate was the highest since February.

Inflation numbers a little better than expected. But inflation numbers also showing signs of re-inflation, both tariff and possibly otherwise. Core annual rate: 1 month: 3.9% 3 months: 2.8% 6 months: 2.4% 12 months: 3.1%

[image or embed]

— Jason Furman (@jasonfurman.bsky.social) August 12, 2025 at 8:01 AM

Here are all the numbers. All of them highly elevated except headline--which benefited from a 2.2% decline in gasoline prices (seasonally adjusted).

[image or embed]

— Jason Furman (@jasonfurman.bsky.social) August 12, 2025 at 8:01 AM

It's largely in the core index where we would be more likely to see some tariff effects, and some household goods are showing increases. But it does not yet appear to be leading to widespread price increases through the entire economy.

Tariffs did appear to show up in several categories.

For instance, household furnishings and supplies showed a 0.7% increase after rising 1% in June. However, apparel prices were up just 0.1% and core commodity prices increased just 0.2%. Canned fruits and vegetables, which generally are imported and also sensitive to tariffs, were flat.

“The tariffs are in the numbers, but they’re certainly not jumping out hair on fire at this point,” former White House economist Jared Bernstein said on CNBC. Bernstein served under former President Joe Biden.

So with the core CPI creeping back above 3%, and with the traditional thought being that the Fed cares more about core indexes than the overall increase in prices, you’d think the CPI report might draw some concerns. But instead Wall Streeters boosted their hopes about looser monetary policy.

Expectations for lower rates soared following the report. Traders are now pricing in a nearly 91% chance of a rate cut next month, per trading data from the CME’s FedWatch Tool. That’s up from a 85% chance before the data release. Traders also increased their bets on rate cuts in October and December.

“It looks like a bit of Goldilocks right now for the stock market,” said Tom Hainlin, national investment strategist at U.S. Bank Asset Management Group. “More and more people are expecting a rate cut in September. So, rates kind of on a downward bias, earnings on an upward bias — that’s a pretty good environment for the broad stock market.”

Well, it's those two things, or the traders are in a delusional Bubble of BS that bursts as soon as job losses confirm that we are in stagflation, or we see even more inflation if the economy somehow picks up in the next few months.

And better profits? With higher tariff costs? Well, layoffs and non-hiring might be good for corporate profits, I suppose (along with stock manipulation and buybacks).

I’ll also note one area of the July CPI report that had sizable price increases – medical care.

1-month change prices, July 2025
Health Insurance +0.4%
Overall Medical Care Services +0.8%
Physicians’ Services +0.2%
Dental Services +2.6%
Hospital Services +0.5%
Nursing Home/Adult Day Services -0.1%

12-month change prices, July 2025
Overall Medical Care Services +4.3%
Health Insurance +4.4%
Physicians’ Services +3.1%
Dental Services +4.8%
Hospital Services +5.7%
Nursing Home/Adult Day Services +4.7%

That’s generally the “full-price” cost of services, much of which is defrayed for people by the health insurance they carry. And that’s an important caveat, because there are a lot of Americans who will be losing their health insurance and have to pay that full price for health care services very soon.

New from CBO: year-by-year health coverage effects of the "Big Beautiful Bill." The law kicks 10 million off their health insurance (the difference between the orange and dotted blue line). It also does nothing to address the cliff from the blue to the green, for another 5 million losing coverage.

[image or embed]

— Bobby Kogan (@bbkogan.bsky.social) August 11, 2025 at 1:15 PM

And even if people still get their insurance from the ACA exchanges, the most recent estimation by the Kaiser Family Foundation has Obamacare Exchange insurance going up by a median of 18% for next year, and if you’re in the group of people whose tax credits are going away, KFF says your out-of-pocket costs will nearly double.

For subsidized enrollees in states using Healthcare.gov, premium payments average about $672 per year in 2024 ($56 per month). Without enhanced subsidies, the average annual premium payment would rise by 93% ($624) to $1,296.

So the 4-6% inflation we are already seeing in health-related costs is likely to head higher than that for tens of millions of Americans soon.

While I don’t think that the current level of 2.7% overall inflation and the 3.1% core rate is a major economic problem in itself (though you don't want any more than that), I also think it is absurd that coked-up Wall Streeters think this situation would lead the Fed Funds rates to get dropped to 2.5%-3% vs the 4.25%-4.5% range it’s in today. And it seems especially dumb to think the rate cuts would continue as health insurance costs and tariff effects will likely take inflation higher at the end of the year than what we have today.

Data center/AI Bubble is the main reason we aren't already in recession

One thing that's become clear to me is that the Bubble in data center construction is one of the few areas of actual growth in our economy. While our overall economy has been flagging, including in the construction sector, data centers keep getting built in increasing amounts.

Data centers have replaced other forms of office construction, and kept that part of construction from suffering a significant collapse over the last 2 years.

As Menzie Chinn notes at Econbrowser, data centers have accounted for nearly all of the non-residential construction sector growth in the last few quarters, and I'll add that new information processing equipment has masked a significant falloff in growth in the underlying US economy.

In addition to the unsustainable amount of construction with these data centers, we are starting to see reports like this on how this Bubbly AI stuff is affecting the jobs market.

You gotta feel for new college graduates. 😞 B of A says “AI adoption is starting to deflate US labor market .. Unemployment rate spikes to 8.1% - was 4.0% in Dec'23 ..”

[image or embed]

— Carl Quintanilla (@carlquintanilla.bsky.social) August 8, 2025 at 7:25 AM

Goldman has been watching this, too.

[image or embed]

— Carl Quintanilla (@carlquintanilla.bsky.social) August 8, 2025 at 7:27 AM

I take this as yet another indication that things are more likely to go down than go up in the coming months, and what's going to pull us out of these doldrums in 2026?

CPI and retail sales info comes out in the next few days, and I think that'll go a long way to telling us if I'm right about that downtrend.

Tax Scam 2.0. Now with more debt!

It's been a month since Trump/GOP's Big Bunch of Bogus got signed into law, but it was such a rushed document that the Congressional Budget Office is still sorting out all of the provisions and effects in that package. And we found out recently that the reality of more debt means Tax Scam 2.0 will drive our deficits even higher.

The Congressional Budget Office and the staff of the Joint Committee on Taxation (JCT) estimate that over the 2025–2034 period deficits will increase by $3.4 trillion for the legislation as enacted, excluding any macroeconomic or debt‑service effects (see Table 1).

CBO estimates that the additional debt-service costs under the legislation as enacted will total $718 billion over the 10-year period. That change will increase the cumulative effect on the deficit to $4.1 trillion. As a result, and net of any changes in borrowing for federal credit programs, the agency estimates that the legislation will increase debt held by the public at the end of 2034 by 9.5 percentage points relative to CBO’s January 2025 baseline budgetary projections of gross domestic product (GDP). Other factors, such as administrative actions affecting tariffs and immigration, also have affected deficits and debt since January 2025 and will be reflected in CBO’s next baseline.

In fairness, we have seen a significant amount of tariff revenue coming in, to the tune of a $15-$20 million boost each month.

If that level of tariff revenue were to hold up, we’d see $200 billion or even a little more raised from them that weren’t a part of the calculations at the start of the year. So that’s a bit of an offset, although the tariffs will cost Americans and businesses more, and the higher inflation (and unemployment?) that results will likely drive up the costs of benefits and lower income tax revenues for the future.

The CBO went on to respond to a question from US Sen. Jeff Merkeley to find out what it would cost to keep the tax cuts beyond the few years the GOP put in to limit the total costs.

You have asked in particular about the additional effects on deficits and the debt of permanently enacting the act’s temporary tax provisions. JCT has estimated that making those 10 provisions permanent would increase primary deficits over the 2025–2034 period by an additional $0.8 trillion (see Table 2).

CBO estimates that if those provisions were made permanent, overall debt‑service costs would total $789 billion over the 10‑year period. That change would increase the cumulative effect on the deficit to $5.0 trillion.

If that were to happen, we'd see baseline budget deficits going over $3 trillion a year by 2032.

Maybe the tariff revenue offsets some or even all of these added costs from debt and the possibility of keeping these tax cuts. But the tariffs are already unpopular with the general public, and probably will become more disliked if we fall into recession in the near future, and prices stay elevated.

I see the future decisions that are looming with Tax Scam 2.0, and I get more confident that we’ll have free and fair elections in 2028. Because the GOP has cynically put these time bombs where many of the severe service cuts are set to get worse after 2029, and if Dems were to be in power in that year, they could be blamed for “raising taxes” if they rightly choose not to continue these costly, regressive tax cuts and related gimmicks.

ISM report shows services also stalling out in July, with prices rising

We knew that June didn't end well for the overall economy, and early reports for July don't look good either, as we found out on Tuesday.

U.S. services sector activity unexpectedly flatlined in July with little change in orders and a further weakening in employment even as input costs climbed by the most in nearly three years, underscoring the ongoing drag of uncertainty over the Trump administration's tariff policy on businesses.

The Institute for Supply Management (ISM) said on Tuesday its nonmanufacturing purchasing managers index (PMI) slipped to 50.1 last month from 50.8 in June. Economists polled by Reuters had forecast the services PMI would rise to 51.5. A PMI reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of the economy.

Economists say businesses continue to struggle to digest the aggressive tariffs President Donald Trump is imposing on goods imported from abroad. Last week Trump, ahead of a self-imposed deadline of August 1, issued a barrage of notices informing scores of trading partners of higher import taxes set to be imposed on their exports to the U.S.

That comes one week after ISM’s manufacturing index for July had a fifth straight month of contraction, and it's an indication the economy kept deteriorating at the start of the 3rd Quarter of 2025.

If you go into the ISM Services report, it doesn’t get better.

Employment activity in the services sector dropped further into contraction territory in July after one month of expansion in May. The Employment Index registered 46.4 percent, down 0.8 percentage point from the June figure of 47.2 percent. Comments from respondents include: “Lost a few service technicians; still difficult to recruit in this market” and “We have lost employees due to normal attrition and are having issues backfilling these positions with qualified candidates.”

And even in the services sector, which is less likely to have tariffs on their products, a significant number of business owners were reporting higher prices last month.

Prices paid by services organizations for materials and services increased in July for the 98th consecutive month. The Prices Index registered 69.9 percent, 2.4 percentage points higher than the 67.5 percent recorded in June. The July reading is the index’s highest since October 2022 (70.7 percent), as well as its eighth straight month above 60 percent but the 33rd in a row below 70 percent.

Remember that we were seeing the highest inflation in 40 years in 2022, so are those types of numbers what we’re heading toward? I can't think it'll get to that 9% level, but it sure seems like it'll be above the 2.5%-3% range that we've been in.

Among other numbers in that ISM report, exports and imports in the service sector both declined in July after a one-month increase in June, and let’s see if that will bear out in the trade numbers for July that will be released at the end of this month.

And yet the stock market is staying near its record highs. I just don't get it. Are we now in a "bad news is good news" scenario where these coked-up traders think bad economic data won't just lead to a September rate cut, but a significant one? And even if that was to happen, how would a job-losing recession to go along with higher prices for tariffs not override the cheaper borrowing costs?

The last piece that is keeping us out of recession is low unemployment claims. We find out tomorrow if that changed in the last week of July, but even if those claims stay low, what's going to pull us out of the stall that the economy clearly was in by the end of July?

After WisGOPs don't add state funds for school costs, property taxes will rise in December.

Now that the Wisconsin budget has been officially signed into law, the Legislative Fiscal Bureau has been releasing reports summarizing some key parts and effects in the wake of that document. Among those was a look at what will happen with property tax bills under the budget, and those bills are likely to rise this Winter, even with one provision reducing those bills a bit.

Act 15 modified the definition of revenue limits for school districts and technical college districts to include the personal property aid payment associated with the 2023 full exemption of all personal property from taxation. These modifications were also included in SB 45/AB 50, as initially introduced. As a result of these modifications, the exempt personal property aid payment must be considered revenue for the purposes of calculating the limit. This modification will decrease school district levies by an estimated $57.4 million annually and technical college districts by an estimated $5.1 million annually.

As a result of the provisions included in Act 15, gross property tax levies are currently estimated to increase on a statewide basis by 5.1% in 2025(26) and by 4.9% in 2026(27), while net levies are estimated to increase by 6.0% in 2025(26) and by 5.5% in 2026(27). These levies would result in estimated tax bills for a statewide median-valued home of $3,590 in 2025(26) and $3,746 in 2026(27). This would represent a decrease of $16 (0.4%) in 2025(26) and $15 (0.4%) in 2026(27), compared to the estimated tax bills under prior law.

Our property tax bill is well over double that $3,417, so...yeah, not great.

The LFB document adds that Governor Evers had several items in his budget proposal that would have kept those property tax bills down near 2024 levels for the next 2 years, but the GOP Legislature didn't go for them.

Act 15 does not include several provisions of SB 45/AB 50 [Gov. Evers' budget proposal] that would have affected property tax levies in the 2025-27 biennium. These provisions include modifications to school district revenue limits and county and municipal levy limits, which would have allowed increases to school district and county and municipal levies. Also, Act 15 does not include SB 45/AB 50 provisions that would have provided aid to counties and municipalities that would not increase their annual levy and provisions that would have provided additional funding for general school aids and the school levy tax credit.

This is the outcome of a budget compromise that gave a $0 increase in general school aids, and it didn't include Evers' incentives for counties and municipalities to freeze their property tax levies. Republicans may want to blame Evers for allowing K-12 districts to put in a $325-per-student increase in resources through a creative veto in 2023 (the HORROR!), but Evers was the one who wanted to cover those costs with state aids and take them off of the property tax, while Republicans chose to pass the costs down to the local level and property taxes.

To be fair, districts don't have to take the full $325-per-student increase, although that amount won't even cover the cost of inflation for many Wisconsin schools. If the GOP Legislature was smart, they could make the excuse that events in Washington DC made them rush the budget through, and they can try to cover some of this looming property tax increase.

However, there is very little cushion left after a budget that includes more than $1.5 billion in tax cuts, nearly $728 million being sent to the Transportation Fund, and $326.5 million more to avoid borrowing for building projects.

So it would be difficult to find any state funds to try to limit the higher property taxes that are coming in 4 months. And who knows what we might have to come up with if our currently-stalled economy falls into a full-fledged recession that would reduce tax collections and raise costs at the state level. Again, not great.

Inflation, income, and spending numbers for June shows more proof of a stalling economy

The day before we got a jobs report that seemed to have a big changes on a lot of people's vibes on the economy, we had the income and spending report of June, and that also should have been a warning sign that things weren't in a good place as Q2 ended.

Inflation. It was similar to the bump up that we saw with the Consumer Price Index a couple of weeks ago. The Personal Consumption Expenditures Index was up 0.3% for both core and overall prices, which is slightly above what the trend had been in recent months.

A big pop in core PCE inflation in June. Annual rates: 1 month: 3.1% 3 months: 2.6% 6 months: 3.2% 12 months: 2.8% No matter what horizon you're looking at this is too high. (Although there is a case that it is transitory due to tariffs.)

[image or embed]

— Jason Furman (@jasonfurman.bsky.social) July 31, 2025 at 8:09 AM

As I’ve said before, I don’t see inflation of 2.5%-3% as a big deal in itself. But on its own, it also shouldn't cause the Federal Reserve to resume cutting interest rates from the 4.25%-4.5% Fed Funds rate that we are at today. With the indications that businesses have seen price pressures increase recently due to tariffs and related effects, why would inflation slow down any time soon?

Income growth. Seems like it’s not bad at a 0.3% increase overall. But out of $71.4 billion (annualized) of income growth, less than ¼ of it came from wages and salaries ($17.2 billion), while over $40 billion came from Social Security and Medicare benefits.

It continues a trend where workers have seen lower increases in income in each of the last 3 months, and there aren't large, one-time boosts in Social Security income

like we had in the first few months of 2025.

June had the weakest growth in wages and salaries in nearly a year, and the decline in income growth is certainly not a trend you want if you want the economy to stop its stumbling.

Consumer spending. It was also up by 0.3%, which was a decent bounce back from the decline we had in May. But that’s also no different than the 0.3% rate of inflation, and after adjusting for price increases, consumer spending in June was less than what it was in March.

As UW-Madison professor Menzie Chinn notes, consumption in durable goods has jumped around as consumers have tried to work around the tariffs since Trump's election in November 2024, but both durables and the rest of US consumption is trending lower in 2025.

Consumption growth in the first half of this year was also the weakest 6-month period (non-COVID) since early 2019 – the last time Trump was in office and conducting a trade war, adding to the evidence that economy was sputtering as Q2 came to an end. Recall that the main driver of the 3% GDP “growth” for the last quarter was due to the reversing of the surge of imports that happened in Q1 to get ahead of tariffs, and not actual economic activity.

After reading the income and spending report on Thursday, I was thinking this.

We haven’t seen the layoffs that we’d expect with these subpar growth levels, and it makes me wonder how long that can be held off if there’s little to no wage or spending growth.

Things aren’t adding up, and it feels like we’re on the verge of some change in trend that sets the tone for the rest of 2025 and start of 2026. Is that a resumption of spending and income growth to help the economy, or higher unemployment and the economy officially going into recession? One of those two things have to be in the data sooner than later, right?

Then on Friday, we got the answer, with the near-zero jobs growth matching the stalling overall economy.