The U.S. economy grew faster in Q2 thanks to consumer spending and an AI-driven investment boom.

But with inflation still above target, labor markets softening, and the Supreme Court preparing to weigh Trump’s tariff powers, investors need to brace for more crosscurrents ahead.

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The Big Picture

Global Trade

American Trade Faces New Jolt as $800 Package Exemption Is Suspended

The United States has moved to suspend tariff exemptions on small packages valued at $800 or less, closing a loophole that had allowed more than a billion parcels to enter the country duty-free last year.

The policy shift marks a significant change for American trade flows, particularly for e-commerce and cross-border retail.

The decision has already triggered a sharp response from trading partners.

More than 30 countries, including Germany, Japan, Australia, and Mexico, have suspended or restricted shipments to the U.S. as businesses grapple with new compliance costs and uncertainty over customs processing.

This move signals Washington’s intent to tighten control over international supply chains, boost tariff revenue, and protect domestic producers from being undercut by inexpensive foreign goods.

But the short-term impact may include higher consumer prices, longer delivery times, and logistical bottlenecks as global shipping companies adapt.

For the broader U.S. economy, the suspension highlights a growing tension: efforts to re-industrialize and shield domestic markets come at the risk of squeezing households and small businesses that rely heavily on affordable imports.

The outcome will hinge on whether the domestic supply chain can absorb demand without sparking further inflationary pressures.

Industrial Policy

America’s Semiconductor Push Shifts Toward State-Led Investment With Wider Economic Stakes

The U.S. government has shifted its approach to semiconductor funding by taking equity stakes in private companies, marking a new phase in industrial policy aimed at strengthening domestic chipmaking.

The move reflects Washington’s willingness to go beyond traditional grants and subsidies under the CHIPS Act and directly embed itself into the industry’s capital structure.

This change carries major implications for the U.S. economy.

By reducing or removing performance conditions tied to federal funding, policymakers are signaling a priority to accelerate production timelines and shore up supply chains over enforcing strict compliance rules.

It also blurs the line between public support and private enterprise, as federal agencies now share both the risks and potential rewards of strategic industries.

For the broader macro environment, the development highlights a decisive tilt toward state-led investment to secure technological sovereignty.

While the U.S. aims to reduce dependence on foreign suppliers and counterbalance China’s dominance in critical technologies, the strategy also raises questions about market distortion, fiscal exposure, and long-term competitiveness.

What is clear is that Washington’s involvement in semiconductors is no longer peripheral as it is becoming central to both industrial planning and economic security.

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Trade Policy

Unsettled Tariff Policy Puts Supply Chains and U.S. Growth Back in the Spotlight

A federal appeals court has ruled that recent U.S. tariffs imposed under “reciprocal” trade mandates and measures tied to fentanyl trafficking exceeded executive authority.

While the tariffs remain in place until mid-October pending appeal, the decision introduces fresh uncertainty into trade policy at a moment when global commerce and domestic planning already face volatility.

For the U.S. economy, the ruling highlights the legal fragility of sweeping tariff actions that affect major partners, including Canada, Mexico, and China.

Businesses that rely on predictable trade frameworks may now have to factor in the risk of sudden reversals, complicating investment and supply chain strategies.

Economists warn that the on-again, off-again nature of tariff enforcement could be more destabilizing than steady application.

The on-again, off-again nature of tariff enforcement could be more destabilizing than steady application.

With markets already showing sensitivity to trade headlines, the uncertainty carries macro-level implications: potential disruption to import costs, corporate planning, and consumer prices. 

As the case moves toward a possible Supreme Court review, both industry and policymakers face a period of heightened volatility.

The uncertainty could weigh on long-term capital investment, as companies delay projects until trade costs are clearer.

It also raises the risk of dampened consumer confidence if higher import costs spill over into household budgets, adding pressure at a delicate stage for the U.S. economy.

Metrics to Watch

• GDP Revision Confirms Strength
  Second-quarter growth was revised up to 3.3% from 3%, with stronger consumer spending and a surge in AI-related investment leading the way.
  
  Final sales to private domestic purchasers rose 1.9%, a reminder that demand at home remains resilient despite tariff-related distortions in trade flows.
  
  

• Jobless Claims Hold Steady
  Weekly filings came in at 229,000, slightly better than expected, and revisions showed claims trending lower than feared earlier this summer.
  
  Layoffs remain rare, but with hiring sluggish, even modest weakness could tip the balance in the coming months.
  
  

• Inflation Still Above Target
  July’s PCE index rose 2.6% year over year, unchanged from June, while core PCE ticked up to 2.9%.
  
  That keeps inflation elevated relative to the Fed’s 2% goal, making it harder for policymakers to commit to a deep easing cycle even as markets price in a September cut.
  
  

• Income and Spending Firm Up
  Personal income rose 0.4% in July, and spending advanced 0.5%, signaling that consumers are still driving the expansion.
  
  Healthcare, travel, and dining all contributed to the uptick, though affordability constraints could limit momentum if wage growth continues to lag inflation.

Market Movers

🪑 Powell Keeps September in Play
Powell’s Jackson Hole speech left little doubt that rate cuts are back on the table, but his caution around inflation shows the Fed is walking a fine line.

For investors, the message is that easing may come gradually rather than in rapid succession.

🏠 Housing Remains a Drag
New home sales dipped again in July to an annualized pace of 652,000, with inventories stuck near their highest levels since 2007.

Median prices dropped nearly 6% from a year earlier, showing the continued impact of affordability concerns and high mortgage rates on demand.

⚖️ Supreme Court Takes Up Tariffs
Trump’s sweeping tariff powers are now heading to the Supreme Court after lower courts pushed back on his emergency authority.

Businesses across various industries are bracing for a ruling that could either reinforce or clip presidential control over trade, shaping supply chains and costs for years to come.

📈 AI Powers Investment Growth
Spending on intellectual property and software rose at the fastest pace since 2007, reflecting the AI boom.

Investment in chips and data centers continues to offset weakness in housing and manufacturing, offering a growth cushion even as traditional sectors struggle.

💼 Consumers Still Spending
Despite low confidence and a fragile labor market, Americans increased their spending by 0.5% in July, outpacing income gains.

That resilience has kept GDP growth positive, but it raises questions about sustainability if households continue to dip into their savings to maintain the pace.

Market Impacts

Equities: Stocks faded into the long weekend after hitting fresh highs, with the S&P 500 down 0.64%, the Nasdaq down 1.15%, and the Dow down 0.20%.

Core PCE hit 2.9% y/y (in line but hotter than June), keeping focus on jobs data for confirmation of a September cut.

Nvidia slid >3% on chatter about a rival Alibaba chip, while tariff commentary pressured cyclicals (Caterpillar flagged a ~$1.5–$1.8B 2025 hit; Gap warned on margins).

Despite Friday’s pullback, August closed in the green: the Dow gained 3%, the S&P 500 rose 2%, and the Nasdaq increased 1.6%, heading into a historically soft September.

Bonds: Yields nudged higher post-PCE: 10-year ~4.23% (+2 bps), 30-year ~4.93% (+5 bps), while the 2-year eased to ~3.62% (−1 bps).

The curve steepened as traders balanced in-line inflation with a still-elevated chance of a September cut and legal uncertainty around the attempted removal of Fed Gov. Cook.

Next catalyst: payrolls and ISM to firm up the near-term path.

Currencies: The dollar eased, marking a monthly decline (~−2% DXY in August) as markets priced a roughly 87% chance of a September cut. Euro ~1.17 and CHF firmer; USD/JPY ~146.8.

Ongoing headlines surrounding Fed independence have added a modest policy-risk premium, but positioning is shifting to focus on U.S. labor and manufacturing prints this week.

Commodities: Oil prices slipped on demand worries and ceasefire talks: Brent $68.12 (−0.73%), WTI $64.01 (−0.91%). OPEC+ supply adds weight in the near term, even as U.S. crude draws remain supportive; India’s stance on Russian barrels remains a wild card.

Gold advanced ~0.9% to ~$3,447, capping its best month since April as rate-cut odds stayed high, though the $3,400–$3,500 zone remains sticky ahead of key data.

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Key Indicators to Watch

📅 ISM Manufacturing (Tue, Sept 2, 10:00 ET) - Consensus 48.5 vs. 48.0 prior. A sub-50 print would show the softness in the goods sector; any upside could ease recession fears and support cyclicals.

📅 JOLTS Job Openings (Wed, Sept 3, 10:00 ET) - Expected ~7.4M. A further dip in openings would confirm a cooler hiring backdrop and bolster the case for a September cut.

📅 Factory Orders (Wed, Sept 3, 10:00 ET) - Forecast −1.3% after −4.8%. A smaller decline would align with firmer core demand seen in ex-transport durables.

📅 Fed Beige Book (Wed, Sept 3, 14:00 ET) - Fresh anecdotes on wage pressures, pricing, and hiring. Watch for mentions of tariff pass-through and labor-market slack.

📅 Auto Sales (TBA, Wed) - A high-frequency gauge of consumer demand and financing sensitivity; softness would likely echo weaker confidence and high-rate headwinds.

Everything Else

• The latest PCE inflation report showed prices rising 2.9% year-over-year, keeping pressure on the Fed.

• A no-hire, no-fire trend is reshaping the labor market as companies hoard workers but stall new hiring.

• U.S. consumer spending rose strongly in July, even as core inflation stayed warmer in services.

• German unemployment climbed above three million for the first time in a decade, signaling mounting economic stress.

• The U.S. is still working on new trade deals despite a court ruling challenging Trump’s tariff authority.