1 big thing: Cooler, but not cold

2. Catch up quick

3. Crypto faces the regulators

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4. Wagering on Sportradar

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5. Apple banks on subsidies 

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🌭 of the day: The price of frankfurters fell 8.3% month over month in August, according to the BLS.

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1 big thing: A scary, but normal market phenomenon

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3. Exclusive: A new alliance for entrepreneurial equity

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4. Record inflation worries

5. Report: Bustling holiday shopping season ahead

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Situational awareness: Apple will be unveiling new products at 1pm ET today.

Plus: Leveling the entrepreneurs' playing field

Axios Markets: Scary (not scary) stock market stat

1 big thing: Macau stocks reel as China flexes

3. Milestone: Pre-pandemic production levels reached

4. Biden turns to business leaders in vax push

President Joe Biden at a meeting with business leaders Sept. 15, 2021. 

5. The crypto carry trade

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🚨Situational awareness: The August retail sales report will be released at 8:30am ET. Economists expect a modest decline amid shortages and the resurgence in COVID-19 infections.

1 big thing: Delta didn't slow shoppers

3. Fed takes on its own trading rules

4. The consumer's massive "war chest"

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5. America fought the pandemic economy — and won

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🚨 Situational awareness: Today’s my last day at Axios. Some of you will remember that I’m obsessed with covering labor turnover stats, so the irony of my brief tenure is not lost on me. 

As I head to my next opportunity, rest assured you’re in great hands with the awesome Axios team. Aja Whitaker-Moore will be in your inbox on Monday.

1 big thing: Game of tickers

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3. Afghanistan's cash problem

Ajmal Ahmady, former Afghanistan central bank governor

4. Producer prices are still moving up

5. What I'm watching this week

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National

Industrial production joins metrics like GDP and consumer spending that have returned to and surpassed pre-pandemic levels.

Why it matters: The pandemic has caused a wide array of disruptions that have gummed up the links along the supply chain. The fact that industrial production still continues to grow suggests the supply chain, while troubled, is at least improving.

By the numbers: Industrial production rose by 0.4% in August month over month, according to Federal Reserve data released Wednesday.

While this was below expectations for 0.5% growth, the level of activity was above pre-pandemic levels.

Between the lines: “Late-month shutdowns related to Hurricane Ida held down the gain in industrial production by an estimated 0.3 percentage point,” the Federal Reserve noted. 

What they’re saying: “Even with the hurricane-related disruptions in August and continued supply chain issues in the auto sector, overall manufacturing output has been able to climb at a solid rate on net in recent months,” JPMorgan economist Daniel Silver wrote.

State of play: We recently learned U.S. manufacturers had a backlog of unfilled orders worth $1.2 trillion, as businesses invest in growth and replenish their inventories.

“Growth in manufacturing going forward is likely to be supported by low inventories,” HFE chief U.S. economist Rubeela Farooqi says.

Yes, but: “With the Delta variant causing renewed disruption to global supply chains and Hurricane Ida weighing on oil production, a further slowdown looks likely in September,” says Andrew Hunter, Capital Economics senior U.S. economist.

What to watch: Regional manufacturing surveys will offer updated views on what’s going on in America’s factories.

The Empire State manufacturing survey, the first of the regional surveys, unexpectedly showed a significant jump in activity in September.

Milestone: Industrial production reached pre-pandemic levels

The fact that industrial production still continues to grow suggests the supply chain is at least improving.

Gross domestic product (GDP)

Industrial production joins metrics like <a class="gtmContentClick" data-vars-link-text="GDP" data-vars-click-url="https://www.axios.com/us-gdp-q2-44b908c8-0f96-4e4b-8e9f-bb0980b6c805.html" data-vars-content-id="1f2d39df-4f73-4771-a423-adc44142a8c6" data-vars-headline="Milestone: Industrial production reached pre-pandemic levels" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/us-gdp-q2-44b908c8-0f96-4e4b-8e9f-bb0980b6c805.html" target="_self">GDP</a> and <a class="gtmContentClick" data-vars-link-text="consumer spending" data-vars-click-url="https://www.axios.com/defiant-shoppers-a5bcbb56-ce65-412c-8d3d-6acc9f0acfad.html" data-vars-content-id="1f2d39df-4f73-4771-a423-adc44142a8c6" data-vars-headline="Milestone: Industrial production reached pre-pandemic levels" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/defiant-shoppers-a5bcbb56-ce65-412c-8d3d-6acc9f0acfad.html" target="_self">consumer spending</a> that have returned to and surpassed pre-pandemic levels.Why it matters: The pandemic has caused a wide array of disruptions that have gummed up the links along the <a class="gtmContentClick" data-vars-link-text="supply chain" data-vars-click-url="https://www.axios.com/supplier-delivery-delayed-record-a2baea0e-4823-4574-9588-8406ca9f0fbc.html" data-vars-content-id="1f2d39df-4f73-4771-a423-adc44142a8c6" data-vars-headline="Milestone: Industrial production reached pre-pandemic levels" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/supplier-delivery-delayed-record-a2baea0e-4823-4574-9588-8406ca9f0fbc.html" target="_self">supply chain</a>. The fact that industrial production still continues to grow suggests the supply chain, while troubled, is at least improving.

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

Economists expect the pace of economic growth to cool off now that government transfer payments like stimulus checks and emergency unemployment benefits are in the rearview mirror. But evidence suggests that the U.S. consumer is sitting on a lot of financial firepower that could be a key driver of growth in the quarters to come.

Why it matters: U.S. consumer spending is massive, representing about 70% of GDP.

What they’re saying: “Sustainability of US consumer spending as stimulus support wanes has been questioned by some investors,” Dubravko Lakos-Bujas, JPMorgan head of U.S. equity strategy, wrote in a research note Wednesday.

“We disagree with this negative narrative which underestimates the robustness of consumer balance sheets and more pointedly the savings war chest in place to support future spending.”

By the numbers: During much of the pandemic, personal incomes far outpaced spending. Incomes were boosted by fiscal stimulus while spending was depressed amid lockdowns.

When adjusting for how much consumers typically save, the excess savings accumulated during the pandemic amounts to around $2.4 trillion.

“These significant ‘excess’ savings should more than buffer headwinds that consumers may face from decreasing government stimulus payments and rising consumer prices,” Lakos-Bujas argued.

Yes, but: This estimate doesn’t account for how much money was used for paying down mortgages, paying off student loans, or even funding a brokerage account.

“I’m leery of thinking about this as though it were some giant piggy bank just waiting to fuel some bacchanalian spending spree once we get past the worst of the pandemic,” Wells Fargo senior economist Tim Quinlan tells Axios.

The bottom line: The average consumer has some combination of extra cash and lower debt.

The consumer's massive "war chest"

U.S. consumer spending is massive, representing about 70% of GDP.

Consumers

Coronavirus

Economists expect the pace of economic growth to cool off now that government transfer payments like stimulus checks and emergency unemployment benefits are in the rearview mirror. But evidence suggests that the U.S. consumer is sitting on a lot of financial firepower that could be a key driver of growth in the quarters to come.Why it matters: U.S. consumer spending is massive, representing about <a class="gtmContentClick" data-vars-link-text="70% of GDP" data-vars-click-url="https://www.bea.gov/sites/default/files/2021-08/gdp2q21_2nd.pdf" data-vars-content-id="4cd45230-3e1f-492f-ba8a-158986db707f" data-vars-headline="The consumer&#x27;s massive &quot;war chest&quot;" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.bea.gov/sites/default/files/2021-08/gdp2q21_2nd.pdf" target="_blank">70% of GDP</a>.

The U.S. faces a range of health care flashpoints — unaffordable drugs, opioids, vaping — as we debate whether to adopt universal care. For now, the Affordable Care Act is the law of the land, but Republicans want to issue it a final death blow.

Health

The pace at which consumer prices rose in August cooled off by more than expected. But economists are stopping short of declaring that inflation has been transitory.

Why it matters: Since the beginning of the year, the rate of inflation has been above average.

However, much of it has been driven by supply chain issues amid a rapidly reopening economy, which has led many to argue that this recent bout of inflation is transitory.

By the numbers: The core Consumer Price Index, which excludes food and energy prices, rose by just 0.1% month over month in August.

This was a significant deceleration from the 0.3% increase in July. Economists had expected August's price growth to come in at 0.3% again. 

The prices of used cars and trucks, which had been particularly hot due to supply chain disruptions, fell by 1.5% during the month.

Hotel and motel prices and airline fares, which were boosted earlier this year by the rush to travel, fell by 3.3% and 9.1%, respectively.

What they’re saying: While a lower-than-expected inflation reading may be welcome news to the Federal Reserve, which has been keeping monetary policy very loose, economists caution against declaring victory on rapidly rising prices.

“The winds of transitory inflation became crossed this month,” Bank of America U.S. economist Alexander Lin said. He noted that while prices for some notable items fell, prices for other items — including new cars, home furnishings, recreational goods and apparel — rose significantly.

Between the lines: There’s also the matter of the recent resurgence in COVID-19 cases putting a damper on demand, which in turn has helped prices cool.

Goldman Sachs chief economist Jan Hatzius wrote that “Delta-sensitive categories contributed -0.13pp” to the monthly decline in core CPI, adding that this “could reverse in coming months if cases continue to fall.”

What to watch: The next few consumer inflation reports will bear watching to see if prices continue to cool, which will be at least partly dependent on the direction of COVID infections.

“Inflation from February to July was extraordinarily high: core CPI rose at an 8.0% annual rate,” Jason Furman, a Council of Economic Advisers chairman for President Obama, tweeted. “We always knew that inflation would not continue at an 8.0% annual rate."

"The question is will it slow to something like 2% (the Fed's view) or something meaningfully higher (my view).”

Economists caution against declaring victory over inflation

Some economists are stopping short of declaring that the recent bout of inflation has been transitory.

Inflation

A graph showing percent change in core CPI.

The pace at which consumer prices rose in August cooled off by more than expected. But economists are stopping short of declaring that inflation has been transitory.Why it matters: Since the beginning of the year, the rate of inflation has been above average.

Macau casino stocks imploded Wednesday on news that gaming companies on the island are now squarely in China's regulatory crosshairs.

Why it matters: Macau historically operated at arm's length from Beijing, developing a reputation as a Wild West not only for casino gambling but also for money laundering and loan-sharking.

Now, the Chinese Communist Party apparently wants to rein in Macau's excesses even more than it already has.

What happened: Gaming licenses in Macau, which will expire in June 2022, are undergoing an expected renewal process. What was unexpected was Macau officials announcing a review of how the gaming industry is regulated. The process includes a 45-day consultation period starting Sept. 15.

“Among the topics being covered: how many licenses — known locally as ‘concessions’ — will be allowed, how long their terms will be, and the level of supervision by the government,” Bloomberg reports.

Shares of Sands China and Wynn Macau tumbled by a third amid the prospect for tighter regulation. Las Vegas Sands, MGM Resorts International and Wynn Resorts International also traded lower.

The big picture: China is unlikely to do to Macau gamblers what it did to teen gamers. There are still going to be casinos on the island — and they are still going to be owned largely by foreign companies.

Investors are worried, however, that Sino-American geopolitical tensions will result in U.S. operators being penalized, either by being forced to lower their profit margins or by being forced to partner with Chinese companies.

What they’re saying: "Fear of the unknown is the dominant narrative,” Deutsche Bank analyst Carlo Santarelli wrote on Wednesday. "Investors have taken note of other sectors in China that have been hit hard by Government intervention and increasing control.”

The bottom line: Investors are acutely aware that the Chinese government sees capitalism and profit as a means to an end, rather than a goal in itself.

The CCP has already made it a lot harder for Chinese people to gamble in Macau. This week's announcements suggest that process is far from over.

Go deeper: Ex-intel officials claim antitrust could hurt U.S. in China tech race

Macau casino stocks reel as China flexes regulatory powers

The Chinese Communist Party apparently wants to rein in Macau's excesses even more than it already has.

China

Macau casino stocks imploded Wednesday on news that gaming companies on the island are now squarely in China&#x27;s regulatory crosshairs.Why it matters: Macau historically operated at arm&#x27;s length from Beijing, developing a reputation as a Wild West not only for casino gambling but also for money laundering and loan-sharking.

China is becoming the most formidable rival America has faced, and the risk of confrontation with Russia, North Korea or Iran still looms. Authoritarians are rising, the chaotic Afghanistan exit revealed the limits of U.S. power, and the pandemic, climate change and other critical challenges continue to pose grave threats.

World

Consumers defied expectations and shopped at an increasing rate amid a resurgence in COVID-19 cases.

Why it matters: Several measures of consumer confidence fell sharply in August, suggesting consumer spending could fall during the month. In fact, concerns about the Delta variant's impact on the economy had prominent Wall Street economists cutting their expectations for Q3 GDP growth.

Yes, but: Retail sales in August unexpectedly rose 0.7% month over month. Economists were expecting a 0.7% decline.

By the numbers: Excluding autos and gas, sales jumped by 2% to $448 billion. Economists were expecting no growth in this metric.

Leading the way was online retail, which jumped 5.3%. Furniture and home furnishings sales climbed by 3.7%. Department store sales rose by 2.4%.

On the weak side, motor vehicles and parts sales fell 3.6%. Electronics and appliances sales declined by 3.1%. It’s worth noting that these are both categories that have been affected by chip shortages.

What they’re saying: “Confidence may have plunged, but rising incomes, employment and accumulated savings mean that people continue to spend,” ING chief international economist James Knightley said.

“Upside surprises on this scale don’t come often, and this one indicates a real degree of resilience on the part of consumers,” Pantheon Macroeconomics chief economist Ian Shepherdson noted.

Between the lines: On one hand, low inventories due to supply chain issues may have limited some retailers' sales. On the other hand, expectations for shortages and the desire to avoid crowds may be pulling forward some holiday sales.

According to a CreditCards.com survey flagged by CNBC, 13% of shoppers planned to begin their holiday shopping as early as August because of these reasons.

Threat level: “Data on the worst effects tied to the spread of the Delta variant and disruptions from Hurricane Ida are still ahead of us,” Grant Thornton chief economist Diane Swonk said. 

“This is at the same time that the additional support to unemployment insurance for millions has expired. We are poised to eke out a very modest gain for consumer spending during the quarter.”

The bottom line: Consumers have proven incredibly resilient, sending retail sales well above pre-pandemic levels. 

While risks to spending linger, consumers continue to have the capacity to spend at a rising clip. More on that later in this newsletter.

Retail sales increase despite low expectations from Delta

Retail sales in August unexpectedly rose 0.7% month over month. Economists were expecting a 0.7% decline.

Retail

A chart showing U.S. retail sales, excluding autos and gas.

Consumers defied expectations and shopped at an increasing rate amid a resurgence in COVID-19 cases.Why it matters: Several measures of <a class="gtmContentClick" data-vars-link-text="consumer confidence" data-vars-click-url="https://apnews.com/article/business-health-coronavirus-pandemic-consumer-confidence-4e12e60b27fe5acaa2d7f963e6506e31" data-vars-content-id="fd92a827-f23a-4f4b-81f8-34203b1868ed" data-vars-headline="Retail sales increase despite low expectations from Delta" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://apnews.com/article/business-health-coronavirus-pandemic-consumer-confidence-4e12e60b27fe5acaa2d7f963e6506e31" target="_blank">consumer confidence</a> <a class="gtmContentClick" data-vars-link-text="fell sharply" data-vars-click-url="https://www.axios.com/consumer-sentiment-delta-variant-58156f64-8930-47d2-80dc-fbc237da1df5.html" data-vars-content-id="fd92a827-f23a-4f4b-81f8-34203b1868ed" data-vars-headline="Retail sales increase despite low expectations from Delta" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/consumer-sentiment-delta-variant-58156f64-8930-47d2-80dc-fbc237da1df5.html" target="_self">fell sharply</a> in August, suggesting consumer spending could fall during the month. In fact, concerns about the Delta variant&#x27;s impact on the economy had prominent Wall Street economists <a class="gtmContentClick" data-vars-link-text="cutting their expectations" data-vars-click-url="https://www.axios.com/covid-delta-variant-economy-growth-43453211-a861-4fd4-82fb-6c1be413d916.html" data-vars-content-id="fd92a827-f23a-4f4b-81f8-34203b1868ed" data-vars-headline="Retail sales increase despite low expectations from Delta" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/covid-delta-variant-economy-growth-43453211-a861-4fd4-82fb-6c1be413d916.html" target="_self">cutting their expectations</a> for Q3 GDP growth.

Sam Ro

Stories

The consumer's massive "war chest"

Retail sales increase despite low expectations from Delta

Milestone: Industrial production reached pre-pandemic levels

Macau casino stocks reel as China flexes regulatory powers

Economists caution against declaring victory over inflation

Newsletter editions

Axios Markets: Retail stunner

Axios Markets: Macau's fear grows

Axios Markets: Prices cool

Axios Markets: Scary (not scary) stock market stat

Axios Markets: Ticker rat race