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WASHINGTON — The U.S. trade deficit widened to the highest level in more than two years in July as businesses likely front-loaded imports in anticipation of higher tariffs on goods, suggesting trade could remain a drag on economic growth in the third quarter.

While the surge in imports reported by the Commerce Department on Wednesday would subtract from gross domestic product, it was an indication of strong domestic demand and inconsistent with financial market fears of a recession.

“The July trade data suggest that net trade will weigh on third-quarter GDP growth, but that is hardly cause for concern when it reflects the continued strength of imports, painting a better picture of domestic demand than renewed recession fears would suggest,” said Thomas Ryan, North America economist at Capital Economics.

The trade gap increased 7.9% to $78.8 billion, the widest since May 2022, the Commerce Department’s Bureau of Economic Analysis said.

The government revised the trade data from January through June 2024 to incorporate more comprehensive and updated quarterly and monthly figures.

Imports increased 2.1% to $345.4 billion. Goods imports rose 2.3% to $278.2 billion, the highest since June 2022. They were boosted by an increase in capital goods, which increased $3.3 billion to a record high, mostly reflecting computer accessories.

Imports of industrial supplies and materials, which include petroleum, increased $2.8 billion. There were also rises in imports of nonmonetary gold-finished metal shapes.

President Joe Biden’s administration has announced plans to impose steeper tariffs on imports of Chinese electric vehicles, batteries, solar products and other goods.

The government said last week a final determination will be made public in the “coming days.” There are also fears of even higher tariffs on Chinese imports should former President Donald Trump return to the White House after the November 5 election.

The politically sensitive goods trade deficit with China increased $4.9 billion to $27.2 billion. Exports to China fell $1.0 billion while imports advanced $3.9 billion.

“Imports of goods from China increased, which shows how difficult it will be to direct U.S. manufacturers away from their dependence on lower-cost goods originating from China if that is what Congress and political candidates wish to do,” said Christopher Rupkey, chief economist at FWDBONDS.

Exports gained 0.5% to $266.6 billion. Goods exports climbed 0.4% to $175.1 billion. Exports of motor vehicles, parts and engines decreased $1.7 billion to the lowest since June 2022. Consumer goods exports fell $800 million.

Exports of capital goods surged $1.8 billion to a record $56.1 billion, boosted by semiconductors.

The goods trade deficit increased 6.9% to $97.6 billion after adjusting for inflation.
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Geneva — Workers have seen their slice of the global income pie shrink significantly over the past two decades, swelling inequality and depriving the combined labor force of trillions, the U.N. said Wednesday. 

The United Nations’ International Labor Organization said that the global labor income share — or the proportion of total income in an economy earned by working — had fallen by 1.6 percentage points since 2004. 

“While the decrease appears modest in terms of percentage points, in 2024 it represents an annual shortfall in labor income of $2.4 trillion compared to what workers would have earned had the labor income share remained stable since 2004,” the ILO said in a report. 

The study highlighted the COVID-19 pandemic as a key driver of the decline, with almost half of the reduction in labor income share taking place during the pandemic years of 2020-2022.  

The global crisis exacerbated existing inequalities, particularly as capital income has continued to concentrate ever more among the wealthiest, it said. 

“Countries must take action to counter the risk of declining labor income share,” Celeste Drake, the ILO deputy director-general, said in a statement. 

“We need policies that promote an equitable distribution of economic benefits, including freedom of association, collective bargaining and effective labor administration, to achieve inclusive growth, and build a path to sustainable development for all.” 

Deepening inequality

The ILO stressed that technological advances, including automation, were a key driver of the declines in labor income share. 

“While these innovations have boosted productivity and output, the evidence suggests that workers are not sharing equitably from the resulting gains,” the U.N. labor agency said. 

It voiced particular concern that the artificial intelligence boom risked deepening inequality further.  

“If historical patterns were to persist… the recent breakthroughs in generative AI could exert further downward pressure on the labor income share,” the report said, stressing “the importance of ensuring that any benefits of AI are widely distributed”. 

The ILO found that workers currently rake in just 52.3 percent of global income, while capital income — earned by owners of assets like land, machines, buildings and patents — accounts for the rest. 

Since capital income tends to be concentrated among wealthier individuals, the labor income share is widely used as a measure of inequality. 

It also helps measure progress towards the U.N. sustainable development goal aimed at significantly reducing inequality between and within countries between 2015 and 2030. 

“The report indicates slow progress as the 2030 deadline approaches,” ILO said. 

The report also emphasized the stubbornly high incidence of young people who are not in employment, education or training (NEET). 

Since 2015, the global percentage has slipped slightly, from 21.3% to 20.4% this year. 

But there are major regional differences, with a third of youth in Arab states and nearly a quarter in Africa falling into the NEET category.  

The report also highlighted a large gender gap, with the global NEET incidence among young women standing at 28.2% — more than double the 13.1% seen among young men. 
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Abuja, Nigeria — Barely 48 hours after Nigeria’s state-owned oil company made a startling revelation, hundreds of commuters joined a line stretching many kilometers for fuel at an NNPC outlet in the capital.

In a statement Sunday, Nigeria’s state oil firm, NNPC Limited, said that financial constraints are hampering its ability to import gasoline.

The statement acknowledged local media reports in July that the oil regulator owed oil traders more than $6 billion — double its debt compared with April.

Nigeria depends on imports to meet its daily demand for gasoline — more than 66 million liters — and NNPC is the sole importer of fuel.

Abuja resident John Prince said he’d been waiting in line for hours.

“When I came in the morning, they were not selling [gasoline]. They said they were waiting for orders from above. [Now] I’ve been here for the past two hours,” he said.

Prince said that while customers waited, the gasoline station increased prices by nearly 30%.

NNPC said the situation could worsen supply in coming days but also said it is working with the government and other partners to fix the problem.

Fuel shortages have been recurring in Nigeria since last year, despite Nigerian President Bola Tinubu scrapping the fuel subsidy.

Tinubu doubles as petroleum minister, but authorities later reinstated a partial subsidy to curb inflation, the high cost of living and growing public tensions triggered by economic reforms.

But the founder of the Center for Transparency Advocacy, Faith Nwadishi, said corruption and incompetence are to blame.

“It’s just a cocktail of corruption, impunity and no regard for the people of the country,” she said. “I think it’s just another ploy to make Nigerians pay for impunity. It’s quite disheartening. This morning, I had to queue so that I could get fuel to come out. You know — man hours lost, no productivity, and nobody is making any compensation for that. It’s unfortunate.”

Last month, NNPC announced a record $1.9 billion in profits for 2023 but said it was covering for shortfalls in the government’s petrol import bill.

Ogho Okiti, an economic analyst, said, “Every other oil-producing country is smiling now except Nigeria. So, it’s a transparency problem. There’s so much uncertainty. And that heightened uncertainty and volatility will continue to drive the price and, of course, drive the conditions that we see.

“As it is, we’re losing in all ramifications — we’re paying exorbitant prices for fuel, the government is not getting the resources, and the exchange rate is worsening,” Okiti said.

Meanwhile, authorities say the Dangote Oil Refinery in the Lagos area has begun gasoline production and could supply up to 25 million liters this month.

On Tuesday, the Nigerian Midstream and Downstream Petroleum Regulatory Authority entered an agreement with the NNPC to sell crude oil to Dangote refinery in the local currency, the naira.

If that happens, it could significantly address local supply issues and save the country several billions of dollars in foreign exchange.
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Nairobi — Kenyan officials have long pushed for milk to be pasteurized before it reaches the marketplace, but much of the milk sold is not pasteurized because small-scale vendors and producers can’t afford the expensive machines used in the process. Now, Canadian university graduates have developed a portable, affordable pasteurization machine that could help African farmers cheaply sterilize the dairy product and reduce milk-related disease.

In Kenya, smallholder farmers produce 56% of the milk, with five million dairy cattle generating five billion liters annually. According to Kenya’s Dairy Board, only 28% of that milk is processed by dairy companies, which pasteurize it to kill harmful bacteria.

The remaining 72% is sold directly to consumers by vendors who traditionally heat and reheat the milk over a fire, a method that fails to ensure complete safety.

To address the challenge faced by millions of farmers in Africa and around the world, a group of recent university graduates from Canada has developed a portable pasteurizer machine to help farmers sterilize milk cheaply and in a healthy way.

Miraal Kabir is the head of the startup Safi, which means “pure” in Swahili. She said her technology provides health and economic benefits to users and milk consumers.

“It solves two problems. The main one being the problem of unsafe milk. It allows all of the milk being sold in the market to be safe, which isn’t the case right now. That’s leading to a lot of deaths, a lot of diseases, especially for children under five. And then on a secondary problem that it’s solving, right now in the dairy supply chain, the people who are winning the most are these large processors,” she said.

“They sell milk extremely cheap to these processors who then sell it at a huge premium. And so by allowing small scale farmers to pasteurize the milk themselves and earn the premium of pasteurized milk themselves, we’re actually empowering them financially as well.”

The device is placed on top of a pot. It has a whisk to stir the milk and ensure that it is heated uniformly. It also has a screen and LED lights, which guide the user through pasteurization. A temperature sensor tells the user when the milk is ready.

Moses Sitati is a dairy farmer in western Kenya. His cows produce 60 liters of milk per day, of which 10 liters spoil, meaning it is not suitable for human consumption.

The 40-year-old farmer has been using the pasteurizer for the past 12 months.

“I can sell milk, people can just buy milk and take it at the same time without going and boiling it fast. Now you know when you boil, wait until again by tomorrow so you boil, you are losing the milk, the first thing and also the nutrients. Now the pasteurizer helps to at least store the milk, it helps at least to preserve the milk for a long time,” he said.

In addition to farmers losing their income, raw and unpasteurized milk contains harmful bacteria like salmonella, E. coli, Brucella, tuberculosis, and Q fever.

Sitati is among the 20 farmers and vendors in Kenya and Rwanda who have purchased the pasteurizer.

The father of three happened to get the first product developed by the Safi team, which didn’t satisfy him, but he says he is happy with the final product for its safety and energy consumption.

“The first one could pasteurize milk from two to 10 liters, but this one pasteurized milk from two to 20 liters. The first one didn’t have a lid, so when pasteurizing the milk, it could spill out, so they improved this to put a lid so that there is no milk spilling out when you are pasteurizing. The first one used electricity, and this one uses solar energy. When you charge, you can use it for four hours,” he said.

Last month, the Safi company said it partnered with the Rwandan government, which helped them open for commercialization after taking part in pilot programs.

Kabir said the device tracks pasteurization data, letting farmers prove milk safety and helping regulators monitor it.

“We’ve also incorporated the data software side of things. Our device is actually able to capture all the key pasteurization data and provide it to the farmer themselves or the vendors so that they can prove that they have pasteurized their milk to their customers, but then we’re also able to aggregate all of this data and provide it to governments. Governments and regulators, they’re able to see where milk has been pasteurized, when it was pasteurized, where safe milk is being sold,” said Kabir.

The innovators say they hope to find a good manufacturer to start producing the device next year and make billions of liters of milk disease-free.
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Berlin, Germany — EU chief Ursula von der Leyen has made her first picks for her top team, with the key economy vice-president job going to Italy’s far-right nominee, German newspaper Die Welt reported Tuesday.

Von der Leyen, who secured a second term as commission chief in July, is expected to unveil her proposed lineup following a Friday deadline for states to name their nominees.

Die Welt, citing senior EU diplomats and European Commission insiders, said she is set to give Raffaele Fitto from the far-right Brothers of Italy party the executive vice-president portfolio in charge of the economy and post-pandemic recovery.

The job would oversee how the bloc’s pandemic recovery fund worth hundreds of billions of euros is deployed.

Fitto is Rome’s minister for European affairs.

Others to be named EU vice presidents include Valdis Dombrovskis, from Latvia and currently EU’s trade chief. His role will be EU expansion and Ukraine reconstruction, according to the report.

France’s Thierry Breton, the bloc’s internal market commissioner, will take on industry and strategic autonomy according to Die Welt.

Spain’s Environment Minister Teresa Ribera has been chosen for a “transition” portfolio which will include ecology and digital affairs. 

The nominee for the EU’s foreign policy chief, Estonia’s outgoing leader Kaja Kallas, will also be named an executive vice president.  

Each European member state put forward nominees for von der Leyen’s 26-person team.

Slovakia’s Maros Sefcovic, currently an executive vice president, is set to remain as a commissioner in charge of inter-institutional affairs.

Czech Industry and Trade Minister Jozef Sikela will be in charge of energy, while Poland’s ambassador to the EU, Piotr Serafin, will handle budgetary issues.

After the Commission president names her line-up, the candidates undergo confirmation hearings in the European Parliament in September and October. 
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Washington — When Jerome Powell delivered a high-profile speech last month, the Federal Reserve chair came the closest he ever had to declaring that the inflation surge that gripped the nation for three painful years was now essentially defeated.

And not only that. The Fed’s high interest rates, Powell said, had managed to achieve that goal without causing a widely predicted recession and high unemployment.

Yet most Americans are not in the same celebratory mood about the plummeting of inflation in the face of the high borrowing rates the Fed engineered. Though consumer sentiment is slowly rising, a majority of Americans in some surveys still complain about elevated prices, given that the costs of such necessities as food, gas and housing remain far above where they were before the pandemic erupted in 2020.

The relatively sour mood of the public is creating challenges for Vice President Kamala Harris as she seeks to succeed President Joe Biden. Despite the fall of inflation and strong job growth, many voters say they’re dissatisfied with the Biden-Harris administration’s economic record — and especially frustrated by high prices.

That disparity points to a striking gap between how economists and policymakers assess the past several years of the economy and how many ordinary Americans do.

In his remarks last month, given at an annual economic symposium in Jackson Hole, Wyoming, Powell underscored how the Fed’s sharp rate hikes succeeded much more than most economists had predicted in taming inflation without hammering the economy — a notoriously difficult feat known as a “soft landing.”

“Some argued that getting inflation under control would require a recession and a lengthy period of high unemployment,” Powell said.

Ultimately, though, he noted, “the 4-1/2 percentage point decline in inflation from its peak two years ago has occurred in a context of low unemployment — a welcome and historically unusual result.”

With high inflation now essentially conquered, Powell and other central bank officials are preparing to cut their key interest rate in mid-September for the first time in more than four years. The Fed is becoming more focused on sustaining the job market with the help of lower interest rates than on continuing to fight inflation.

Many Americans ‘have taken a big hit’

Many consumers, by contrast, are still preoccupied most by today’s price levels.

“From the viewpoint of economists, central bankers, how we think about inflation, it really has been a remarkable success, how inflation went up, has come back, and is around the target,” said Kristin Forbes, an economist at MIT and a former official at the United Kingdom’s central bank, the Bank of England.

“But from the viewpoint of households, it has not been so successful,” she added. “Many have taken a big hit to their wages. Many of them feel like the basket of goods they buy is now much more expensive.”

Two years ago, economists feared that the Fed’s ongoing rate hikes — it ultimately raised its benchmark rate more than 5 percentage points to a 23-year high in the fastest pace in four decades — would hammer the economy and cause millions of job losses. After all, that’s what happened when the Fed under Chair Paul Volcker sent its benchmark rate to nearly 20% in the early 1980s, ultimately throttling a brutal inflationary spell.

In fact, at Jackson Hole two years ago, Powell himself warned that using high interest rates to defeat the inflation spike “would bring some pain to households and businesses.”

Yet now, according to the Fed’s preferred measure, inflation is 2.5%, not far above its 2% target. And while a weaker pace of hiring has caused some concerns, the unemployment rate is at a still-low 4.3%, and the economy expanded at a solid 3% annual rate last quarter.

While no Fed official will outright declare victory, some take satisfaction in defying the predictions of doom and gloom.

“2023 was a historic year for inflation falling,” said Austan Goolsbee, president of the Chicago Fed. “And there wasn’t a recession, and that’s unprecedented. And so we will be studying the mechanics of how that happened for a long time.”

Measures of consumer sentiment, though, indicate that three years of hurtful inflation have dimmed many Americans’ outlook. In addition, high loan rates, along with elevated housing prices, have led many young workers to fear that homeownership is increasingly out of reach.

‘Inflation overhang’

Last month, the consulting firm McKinsey said that 53% of consumers in its most recent survey “still say that rising prices and inflation are among their concerns.” McKinsey’s analysts attributed the escalated figure to “an ‘inflation overhang.” That’s the belief among analysts that it can take months, if not years, for consumers to adjust emotionally to a much higher level of prices even if their pay is keeping pace.

Economists point to several reasons for the wide gap in perceptions between economists and policymakers on the one hand and everyday consumers and workers on the other.

The first is that the Fed tailors its interest rate policies to manage inflation — the rate of price changes — rather than price levels themselves. So when inflation spikes, the central bank’s goal is to return it to a sustainable level, currently defined as 2%, rather than to reverse the price increases. The Fed’s policymakers expect average wages to catch up and eventually to allow consumers to afford the higher prices.

“Central bankers think even if inflation gets away from 2% for a period, as long as it comes back, that’s fine,” Forbes said. “Victory, mission accomplished. But the amount of time inflation is away from 2% can have a major cost.”

Research by Stefanie Stantcheva, a Harvard economist, and two colleagues found that most people’s views of inflation are very different from those of economists. Economists in general are more likely to regard inflation as a consequence of strong growth. They often describe inflation as a result of an “overheating” economy: Low unemployment, strong job growth and rising wages lead businesses to sharply increase prices without necessarily losing sales.

By contrast, a survey by Stantcheva found, ordinary Americans “view inflation as an unambiguously bad thing and very rarely as a sign of a good economy or as a byproduct of positive developments.”

Her survey respondents also said they believed that inflation stems from excessive government spending or greedy businesses. They “do not believe that (central bank) policymakers face trade-offs, such as having to reduce economic activity or increase unemployment to control inflation.”

Perceived recession

As a result, few consumers probably worried about the potential for a downturn as a result of the Fed’s rate hikes. One opinion survey, in fact, found that many consumers believed, incorrectly, that the economy was in a recession because inflation was so high.

At the Jackson Hole conference, Andrew Bailey, governor of the Bank of England, argued that central banks cannot guarantee that high inflation will never appear — only that they will try to drive it back down when it does.

“I get this question quite often in Parliament,” Bailey said. “People say, ‘Well you failed to control inflation.’ I said no.”

The test of a central bank, he continued, “is not that we will never have inflation. The test of the regime is how well, once you get hit by these shocks, you bring it back to target.”

Still, Forbes suggested that there are lessons to be learned from the post-COVID inflation spike, including whether inflation was allowed to stay too high for too long, both in the U.S. and the U.K. The Fed has long been criticized for having taken too long to start raising its benchmark rate. Inflation first spiked in the spring of 2021. Yet the Fed, under the mistaken impression that high inflation would prove “transitory,” didn’t begin raising rates until nearly a year later.

“Maybe should we rethink … where we seem to be now: ‘As long as it comes back four to five years later, that’s fine,’ ” she said. “Maybe four to five years is too long.

“How much unemployment or slowdown in growth should we be willing to accept to shorten the length of time that inflation is too high?”
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New York — A broadening rally in U.S. stocks is offering an encouraging signal to investors worried about concentration in technology shares, as markets await key jobs data and the Federal Reserve’s expected rate cuts in September.

As the market’s fortunes keep rising and falling with big tech stocks such as Nvidia NVDA.O and Apple AAPL.O, investors are also putting money in less-loved value stocks and small caps, which are expected to benefit from lower interest rates. The Fed is expected to kick off a rate-cutting cycle at its monetary policy meeting on Sept. 17-18.

Many investors view the broadening trend, which picked up steam last month before faltering during an early August sell-off, as a healthy development in a market rally led by a cluster of giant tech names. Chipmaker Nvidia, which has benefited from bets on artificial intelligence, alone has accounted for roughly a quarter of the S&P 500’s year-to-date gain of 18.4%.

“No matter how you slice and dice it you have seen a pretty meaningful broadening out and I think that has legs,” said Liz Ann Sonders, chief investment officer at Charles Schwab.

Value stocks are those of companies trading at a discount on metrics like book value or price-to-earnings and include sectors such as financials and industrials. Some investors believe rallies in these sectors and small caps could go further if the Fed cuts borrowing costs while the economy stays healthy.

The market’s rotation has recently accelerated, with 61% of stocks in the S&P 500 .SPXoutperforming the index in the past month, compared to 14% outperforming over the past year, Charles Schwab data showed.

Meanwhile, the so-called Magnificent Seven group of tech giants — which includes Nvidia, Tesla TSLA.O and Microsoft MSFT.O — have underperformed the other 493 stocks in the S&P 500 by 14 percentage points since the release of a weaker-than-expected U.S. inflation report on July 11, according to an analysis by BofA Global Research.

Stocks have also held up after an Nvidia forecast failed to meet lofty investor expectations earlier this week, another sign that investors may be looking beyond tech. The equal weight S&P 500 index, a proxy for the average stock, hit a fresh record [last] week and is up around 10.5% year-to-date, narrowing its performance gap with the S&P 500.

“When market breadth is improving, the message is that an increasing number of stocks are rallying on expectations that economic conditions will support earnings growth and profitability,” analysts at Ned David Research wrote.

Value stocks that have performed well this year include General Electric GE.N and midstream energy company Targa Resources TRGP.N, which are up 70% and 68%, respectively. The small-cap focused Russell 2000 index, meanwhile, is up 8.5% from its lows of the month, though it has not breached its July peak.

The jobs report “tends to be one of the more market moving releases in general, and right now it’s going to get even more attention than normal.”

Investors are unlikely to turn their back on tech stocks, particularly if volatility gives them a chance to buy on the cheap, said Jason Alonzo, a portfolio manager with Harbor Capital.

Technology stocks are expected to post above-market earnings growth over every quarter through 2025, with third-quarter earnings coming in at 15.3% compared with a 7.5% gain for the S&P 500 as a whole, according to LSEG data.

“People will sometimes take a deep breath after a nice run and look at other opportunities, but technology is still the clearest driver of growth, particularly the AI theme which is innocent until proven guilty,” Alonzo said.
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