The Trump Administration appears to be striving to divert drug manufacturing from China, Ireland and Switzerland to the U.S. Specifically, President Trump on Thursday announced on Truth Social that, effective October 1st, the U.S. will impose a 100% tariff on “branded” pharmaceuticals if they are not made in the U.S. These tariffs do not apply to generic pharmaceuticals. If pharmaceutical companies are “breaking ground” or new facilities are “under construction,” then the 100% tariffs will be waived.
The Commerce Department reported on Friday that the Personal Consumption Expenditure (PCE) index for August came in line with economists’ expectations of 0.3%. The , excluding food and energy, also came in line with economists’ consensus expectation of a 0.2% increase. In the past 12 months, the and core PCE have risen 2.7% and 2.9%, respectively. Since the PCE is tracking in line with expectations, another Fed key interest rate cut remains possible if the September payroll report comes in below economists’ consensus expectation.
Big news this week was that the Commerce Department on Thursday revised its second-quarter up to a 3.8% annual pace, up from a previously estimated 3.3% annual pace. The primary reason for the upward revision was that consumer spending was revised up to a 2.5% annual pace, up from a 1.6% annual pace previously reported. The weak link in the GDP report was residential investment, which declined at a 5.1% annual pace. Clearly, the housing market and existing home sales remain a major drag on overall economic growth, so the Fed has to continue to cut key interest rates.
Another reason for the upward revision of GDP is that the Commerce Department announced on Thursday that the trade deficit in August plunged 16.8% to $85.5 billion as imports declined 7% to $261.6 billion, while exports declined 1.3% to $176.1 billion. Normally, when both imports and exports decline, it is a sign of economic weakness, but due to the U.S. tariffs, trade is expected to be more balanced.
Speaking of GDP, the August durable goods orders were impressive, so I expect that economists will be revising their third-quarter GDP estimates higher. The Commerce Department on Thursday reported that durable goods orders rose 2.9% in August due largely to a 50% surge in military equipment as well as a 7.9% increase in transportation. Excluding the volatile defense and transportation sectors, durable goods orders rose a respectable 0.4% in August. Excluding just defense orders, rose an impressive 1.9% in August. rose 0.6% in August