The economic giants — the US and China — are months into a slug fest.   The Trump administration would have us believe the US consumer has been mistreated and abused for years.   China, of course, disagrees.   They would argue they have earned their place in the global economy with hard work, tenacity, sacrifice and creativity.   In my opinion, there are elements of truth in both arguments.   

Well, maybe a ‘slug fest’ is too strong a characterization.   More accurately perhaps, the battle is like a high-stakes arm wrestle  involving the two economic giants are responsible for more than half of all global activity — .   The battle lines are clear and the winner will likely impact their country’s economy for years to come.   Fortunately, the battle is economic only.   Rockets and bombs remain in the warehouse.   Hopefully, that will continue to be the case. 

But make no mistake:   Leaders of both countries know the stakes are high and both are fiercely fighting for the citizens of their country.   Given the stakes, they should.  

 

Welcome to this week’s Steak House Index update.

 

If you are new to my blog, or you need a refresher on the SHI10, or its objective and methodology, I suggest you open and read the original BLOG: https://www.steakhouseindex.com/move-over-big-mac-index-here-comes-the-steak-house-index/

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Why You Should Care:   The US economy and US dollar are the bedrock of the world’s economy.   But is the US economy expanding or contracting?

Expanding … according the ‘advanced’ reading just released by the BEA, Q3, 2024 GDP grew — in ‘current-dollar‘ terms — at the annual rate of 4.7%.

The ‘real’ growth rate — the number most often touted in the mainstream media — was 2.8%.   In current dollar terms, US annual economic output rose to $29.35 trillion.

According to the IMF, the world’s annual GDP  expanded  to over $105 trillion in 2023.   Further, IMF expects global GDP to reach almost $135 trillion by 2028 — an increase of more than 28% in just 5 years.

America’s GDP remains around 25% of all global GDP.  Collectively, the US, the European Common Market, and China generate about 75% of the global economic output.  These are the 3 big, global players.   They bear close scrutiny.

 

The objective of this blog is singular.

 

It attempts to predict the direction of our GDP ahead of official economic releases.  Historically, ‘personal consumption expenditures,’ or PCE, has been the largest component of US GDP growth — typically about 2/3 of all GDP growth.  In fact, the majority of all GDP increases (or declines) usually results from (increases or decreases in) consumer spending.  Consumer spending is clearly a critical financial metric.  In all likelihood, the most important financial metric. The Steak House Index focuses right here … on the “consumer spending” metric.  I intend the SHI10 is to be predictive, anticipating where the economy is going – not where it’s been.

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Taking action:  Keep up with this weekly BLOG update.  Not only will we cover the SHI and SHI10, but we’ll explore “fun” items of economic importance.   Hopefully you find the discussion fun, too.

If the SHI10 index moves appreciably -– either showing massive improvement or significant declines –- indicating growing economic strength or a potential recession, we’ll discuss possible actions at that time.

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The Blog:

 

The “post-cultural revolution era” in China began in the mid-1970s.    By the 1980s, seeking to emulate the economic growth seen in the capitalist world, China’s leaders established “Special Economic Zones” intended to attract foreign capital and technology.    “Get rich is glorious” became a slogan of Deng Ziaoping’s administration.   Massive factories were built atop rice fields and China began to integrate into the global supply chain.  

40 years later, we can now look back on the staggering economic success of these policies.   And while I respect their achievement, please let me be clear:  China has fought tooth and nail for every ounce of economic success they have achieved.   They weren’t “nice” about it:   Within the country, in the early days, they pushed farmers and fishermen into factories, separated from their children, even as they instituted the dystopian population growth restrictions loathed here in the west .   Internationally, their business practices were just as ruthless.  I don’t need to recount here their commitment to economically “win at any cost” policies on the global stage.    Countless reports have documented this loutish behavior for decades.  They would argue they did nothing different than their opponents.  Perhaps.  Maybe success on that scale requires a win-at-any-cost approach.   

Again, we don’t have to like the way they did it to respect their achievement.   

Fast forward to 2025.   The Trump administration clearly believes China and the US are now in a zero-sum game.   Chinese gains, they say, are America’s loss.   Only one economy can win.   Trump’s gang seems to believe the US must be a future world-leading manufacturer of high-tech, high-quality, mission critical components to maintain US economic hegemony.   China clearly believes  they must be the future leader using their manufacturing might and robotics, automation and artificial intelligence.   Can both governments “win?”

And what, precisely, does “win” really mean?     On April 6th, in a “Face the Nation” interview, Howard Lutnick suggested,

 

“The army of millions and millions of human beings screwing in little -little screws to make iPhones, that kind of thing is going to come to America.”  

 

Really?   Is that winning?   I hope not.  That is not a win in my book.   No, the idea that those old-time, hard-labor, low-tech jobs are coming back here … or even that Americans want  those jobs is, to me, absurd.   By the way, Lutnick did finish with this comment:

 

“It’s going to be automated and great Americans — the trade-craft of America — is going to fix them, is going to work on them.”

 

That seems more likely.   Automation, I believe, will be foundational and ubiquitous.   Millions of people screwing in screws will not.   

The book “Abundance,” written by Ezra Klein and Derek Thompson, makes this suggestion about the manufacturing sector:

 

“About two-thirds of the jobs in the American economy are in the local service sector, and that number has been steadily growing for fifty years. These are hairstylists and DMV employees and nurses and line cooks and retail workers and real estate agents.”

 

An Economist Magazine article suggests the same, and shares this graphic to prove that point:

 

 

“Services” are where American jobs are today.     It’s possible — perhaps even likely — a large segment of that high-tech, high-quality, automation with AI manufacturing will return and grow on American soil, however most of the workers in those factories will be technicians and analysts, not humans armed with screw drivers.  

This desire by many to honor America’s historic manufacturing prowess brings to mind comments from one of our Founding Fathers.  In the late 1700s, Thomas Jefferson viewed farming as the foundation of a self-reliant republic.  He believed agriculture was a foundational source of national wealth.   Taking a page from Klein and Thompsons’s book, Jefferson believed, “Working the land was the path to liberty and abundance….” to again quote the Economist Magazine.

Of course, the industrial revolution changed all that.  In 1800, more than 70% of Americans were employed in farming.   Today, that number is far closer to zero.   These facts don’t suggest Thomas Jefferson was wrong; they only suggest that things are constantly changing.   The American economy evolved then, and it will do so now.   Our society that was once agrarian, then industrial, is now high-tech.   And where we go from here … is hard to forecast.   

But back in the now, both China and the US each have their own macro-issues to deal with.   In China, they have an exceptionally weak consumer market, mired in deflation.   We Americans, meanwhile, are shouldering a massive public debt load.   So China is looking to shore-up their economy via exports, and the Trump Administration seeks to do the same here with a new revenue source, tariffs.   Where the dust will settle after the arm-wrestling is anyone’s guess.   But the battle lines are clear, and its likely the outcome will impact global supply chains for decades to come.   

Within China, on top of a still weak housing market, their auto market is also showing signs of stress.   Just last month, BYD announced  massive  price cuts — up to 34% for many of their Chinese models.   The price on their cheapest car, the ‘Seagull,’ was reduced by 20%  — down to about $7,750.   That’s right:   $7,750.   FOR A CAR!  Damn.   Amazing.    The CNBC correspondent in China commented, “There are simply too many companies making too many cars?”   

So both housing and autos are weak in China … and deflation has set in.   Ouch.  

 

 

Here’s a photo of the BYD “Seagull.”   Looks pretty nice to me!

So exports matter.   China has been gearing up their export engine.  Even though their overall exports are at a record high in 2025, the trade war has severely diminished exports to the US.:

 

 

That pink line is grim for China’s economy.   That’s why they agreed to meet with the US.   They need exports to work.     Exports  MUST  work for China.

Does the US need the “tariff thing” to work?   That’s a harder call.   And it’s really hard to say how that will shake out.   According to my good buddy, “G”, in January of 2025, the US collected about $7 billion in “customs duties.”   Last month, in May, that number shot up to almost $23 billion.  That’s some serious money.    Interesting. 

Good news?   Bad news?    Time will tell.     Let’s head to the steak houses. 

 

 

Reservation demand improved in the OC this week.   However, that’s probably because Sunday is “Father’s Day.”   The other markets were fairly stable.  

 

 

This week’s SHI10 is out of the red and back in the black.   Good.   But otherwise, this week’s data is rather ho-hum.   

A bit closer to home, the folks over at the “Odd Lots” podcast interviewed the Executive Director of the LA ports.   The LA ports are the busiest in the nation.  Gene Seroka’s comment:  “Over the last seven days … we’ve averaged 5 container ships a day.   Normally, this time of year, it would be about 10-12 ships in port every day.”   

That’s not good.   That is a very steep decline.   It doesn’t bode well for our consumer economy, or the shelves in the stores.   Whether the “tariff thing” works out OK or not, I’m telling you now:   Shop early for your end-of-year gifts.  You may not find them later in the year.  

<: Terry Liebman :>