CONSUMER BUYING PRICES

Before we get started with the first Market Insights of 2026, I would like to thank all of you for your readership. We had a glitch last year in responding to your comments, which has been corrected. I do appreciate any feedback you have and will promptly reply. I wish you all a prosperous and healthy new year.

RSM chief economist Joe Brusuelas calls the economy a "dynamic and resilient beast." I wholeheartedly agree with him when taking into account continuous volatility and uncertainty (VUCA).

When reviewing the main topics of Market Insights in 2025, maybe I should have called it Tariff Insights. After Liberation Day, the forecasts for doom and gloom were abundant. Economists forecasted higher inflation, a slowdown in growth, an approaching recession, and a bear stock market. Immigration last year was virtually halted, which was expected to hurt the economy. Businesses were uncertain about what to do and still are. While Trump said that the tariffs would be paid for by all the countries that exported to the United States, this has overwhelmingly not been the case.

Even so, GDP for 2025 is now estimated at slightly under 3%. This indicates that productivity growth is picking up.

So, what has happened? Headline tariffs were supposed to be well over 27% after being adjusted downward from the 50% to 100% threats of Liberation Day. A new working paper by economists at Harvard and the University of Chicago found that the real average tariff rate was 14.1% as of late September. Another factor limiting the overall tariff impact is that imports account for roughly 11% of GDP and are expected to represent a one-time adjustment rather than a recurring drag.

The recession fears have evaporated. The economy as measured by GDP has been strong since Q1 of 2025. As previously stated, GDP was forecasted to be near 3%. The S&P 500 was up close to 17% for the year. Meanwhile, the Morgan Stanley Capital International (MSCI) All Country World Index excluding America grew 29%.

That all sounds great except for the uncertainty that is hurting most businesses, including manufacturing. The job market continues to be soft as employers have slowed their hiring. Job creation has mainly been driven by healthcare, while cyclical sectors like manufacturing, transportation, and warehousing are shedding jobs.

Inflation under the Biden administration was forecasted to be 2.1% for 2025. Now it is approaching 2.7% and that trend isn't going away. Consumers are unhappy, and affordability remains a continuous problem.

The ISM December report (more to follow in the manufacturing section) hit a 14-month low. The Trump administration’s forecast of a manufacturing renaissance remains to be seen.

There are positive signs for 2026:

• The One Big Beautiful Bill Act will serve as an additional fiscal stimulus this year.
• Consumers will have more money due to tax refunds. Treasury Secretary Scott Bessent said he expects Americans to receive up to $150 billion in early 2026 as a result of the budget law the president signed last summer. This will exponentially increase the federal deficit.
• U.S. real consumer spending (inflation-adjusted) is expected to grow by approximately 2.6% for the full year of 2025. That is up from 2.2% from 2024, although consumers have done this by reducing their savings and increasing their debt.
• The impact of the Federal Reserve’s three interest-rate cuts since September will help.
• Businesses will also have more money as corporations can now deduct 100% of equipment purchases in the year they spend the money.

These facts tell me the beast will have a feast this year.

I also think that with the current rate of change, VUCA - Volatility, Uncertainty, Complexity, and Ambiguity, forecasting will be extremely challenging.

INFLATION

Looks better, but don’t expect the Fed to drop interest rates this month

• The Consumer Price Index (CPI) for December was slightly below forecasts. Headline month-over-month CPI rose 0.3% and core was up 0.2%. On a year-over-year basis, the CPI was up 2.7% and core CPI climbed 2.6%. Even so, affordability does not look good as shelter, food, energy costs, groceries, and home insurance had larger than expected gains.
• Personal Consumption Expenditures (PCE), the Fed’s preferred inflation measure, for September was delayed and finally came out December 5th. September was up 0.3% month over month and is up 2.8% year over year. Core prices (which exclude food and energy) were up 0.2% in September and at 2.8% on an annual basis. These were almost identical to the previous month. Consumer spending was up 0.6% versus 0.5% the previous month. The October release won't be until January 29 due to the government shutdown.
• The Producer Price Index for November rose slightly. PPI and core-PP rose on a year-over-year basis to 3.0% from 2.8% and 2.9% respectively. This higher inflation is not a good sign and will curtail cuts in prime by the Fed.

MANUFACTURING

ISM keeps falling but metal related manufacturing is positive

• The Institute of Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) fell in December to 47.9 from November’s 48.2 and has been in contraction for 10 straight months. The main reasons cited were tariffs, uncertainty and slower orders. There was not much movement either way in most of the indices.
• Industrial Production, on the other hand, continues to look better. Core industrial manufacturing, which excludes volatile autos, posted a gain of 0.1% in both November and October. In the past year, auto production (which is also highly sensitive to President Trump’s tariff policy) is down 5.7% while core manufacturing is up 2.7%.
• AI is a big factor in core industrial production growth. High-tech equipment and semiconductor production posted gains of 1.1% in November and 1.8% in October. In the past year, high-tech manufacturing is up 11.8%, the fastest pace of any major category.  Meanwhile, the manufacturing of business equipment was up a strong 11.2% in the past year with help from some reshoring.
• U.S. non-defense capital goods new orders, excluding aircraft, rose 0.2% in October after a 0.6% rise in September.
• Shipments of core non-defense capital goods excluding aircraft, an essential input for business investment in calculating GDP and a leading manufacturer indicator, rose 0.7% in October, following a 1.2% jump in September. If unchanged in November and December, these shipments would be up at a 5.9% annualized rate in Q4 versus the Q3 average.
• The National Federation of Independent Business said this past Tuesday that its small-business optimism index rose to 99.0, compared with 98.2 in October. The figure remains above the index’s long-term average of 98.0.
• Car and light truck sales for 2025 finished strong and were about 16.2 million units up 2.2% for the year despite average car sales about $50,000.
• The Shapiro Nonferrous Scrap Activity Index tracks our daily purchases from duplicate accounts across our nine locations and a diverse industrial base. Based on our twelve-month trailing average, volumes for December were down 9%.

CHINA

Is China having economic problems?

Yes and no.

China continues to be faced with its 5-year housing crisis, flat to negative inflation, and a negative producer price index for three years. The unemployment rate among young people is high and the security network for retirees is poor. Per capita disposable income in cities is less than $700 a month, while in the countryside as many as several hundred million people subsist on just a few dollars each day.

From January to October, a broad measure called fixed-asset investment has fallen 1.7% from the same period last year. The slide began in the second half of this year and accelerated with a sharp, double-digit decline in October. It now also appears that investment in property, infrastructure and manufacturing, the three major components that make up the figure, are all declining at the same time. Could this be from the effects of the tariffs?

Yes, but...

• The Federal Reserve Bank of Atlanta stated that high-tech manufacturing expanded 9.5% year-on-year, with aerospace manufacturing rising 26.3% and information services up 37.4%.
• For the first time ever, through November of 2025, the country’s trade surplus topped $1 trillion in goods. This demonstrated the resilience of China’s manufacturing ecosystem in the face of Trump’s tariffs.
• China is spending hundreds of billions of dollars each year on domestic technology.
• China now has the biggest power grid the world has ever seen. Between 2010 and 2024, its power production increased by more than the rest of the world combined. Last year, China generated more than twice as much electricity as the U.S. and at lower costs.
• President Trump recently allowed Nvidia to sell China it second most powerful chip. The U.S. gets 25% of the profits from the chips Nvidia sells to China. My, how selling has changed! Interestingly, China’s government has already urged big tech firms to shun a portion of Nvidia’s chips over cybersecurity and other concerns.
• Even though China trails the U.S. in the manufacturing and development of semiconductors, Jensen Huang, CEO of Nvidia, believes China will surpass the U.S. in five years.

China still has problems, but their manufacturing continues to be a dynamo. December PMI rose to 50.1 from 49.2 in November.

METALS

What the experts are saying

On January 12th 2026, Trump announced 25% tariffs on all countries doing business with Iran. This could impact aluminum since most of our aluminum comes from countries that are trading with Iran, including Canada and the Gulf states. That could mean an additional $0.35 to $0.37 per pound in added tariffs. We will see.

Trump put 10% tariffs on aluminum his first term in office. On the April 2nd Liberation Day, he raised Section 232 tariffs to 25%. He said it was due to national security concerns and declining domestic production. On June 4th, he raised it to 50%. I would try to explain his logic, but it makes no sense to me, and I like to keep things as simple as possible.

The results have been a sustained increase in the Midwest premium from the 40-cent range in June and now is close to a dollar. The premium has increased to offset tariffs and attract prime aluminum into the United States. It has also been pushed higher by a $450 per metric ton increase in LME prices.

Timna Tanners, Wells Fargo Managing Director, spoke about tariffs, supply and demand, and the outlook for 2026 during a joint Community Chat hosted by AMU and its sister publication Steel Market Update.

Tanners was asked about the Midwest premiums and if there’s reason to believe tariffs on Canadian aluminum could be reduced. She believes it is unlikely.

She went on, “Even if we carve out an aluminum deal with Canada where there’s a zero tariff, let’s just say, the Midwest premium doesn’t come down, because Canada can’t supply all the aluminum the U.S. needs.”

The U.S. uses six million tons of aluminum per year. Two million tons are produced domestically, and we import four million tons. Sometimes aluminum is called liquid electricity because of how much electricity it takes to produce. Tanners said, “There’s no chance, no way, no how, we’re going to be producing.” She believes that even if we have an agreement with Canada to supply us with aluminum at lower tariffs, we will still need other countries to supply us with incremental volume and that the higher Midwest premium will be needed to attract those incremental tons.”

“There’s nothing in it for Trump,” Tanners said. “He doesn’t get to do a happy dance and say, ‘Aluminum prices have come down,’ or ‘I saved you money on your can of whatever’.”

“That one’s a hard one to call, but irrespective, I don’t think that prices are going to come down easily for aluminum anytime soon.”

Harbor Aluminum has been actively forecasting a bull LME market since last year. Here is their current forecast.

“Harbor continues to expect firmer U.S. and world aluminum demand, tighter market conditions and yet higher LME prices in 2026. We continue to see an overdue rebound in aluminum end-user demand materializing over the coming quarters amid improved U.S. trade policy and tariff visibility, strong U.S. investment projects, world pent-up demand, restocking needs, world fiscal stimulus and declining interest rates. Additionally, the physical market is set to tighten over the coming quarters, given China’s hard cap on smelting capacity and insufficient smelting expansions in ROW (rest of world).”

In addition, Harbor stated, “We continue to see $4,000 per mton as a likely level later in the year.”

In my February Market Insights, I will include Edward Meir’s 2026 aluminum forecast due next week. I always look forward to his awesome analysis and ability to read tea leaves.

Prime aluminum has now gone up every month since May, mainly because of the tariffs and the Midwest premium. The primary aluminum scrap has not done well due to oversupply. Secondary aluminum has been flat all year. Steel prices were up slightly at the beginning of the year and then trended around $400 through December. The stainless steel market was also flat. Copper has gone up 34% this year mainly due to the amount of electricity needed to support the AI boom.

CLOSING

I have always known that change is inevitable in both life and the metals business. Even so, I am often surprised. But this year I was shocked when Section 232 aluminum tariffs were raised to 50% on June 4th.

Despite all the VUCA caused by the tariffs, the U.S. continues to show its resilience, and the beast moves forward. My expectation for 2026 is that we will face a continuous flow of surprises, chaos, and shocks.

The good news is that it's our choice in how we handle and adapt to it.

“Adaptability is being able to adjust to any situation at any given time.” John Wooden