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

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— 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%

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— 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).

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— 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.

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— 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 ..”

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

Goldman has been watching this, too.

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— 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.)

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— 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.