CONSUMER BUYING PRICES

This month, I wanted to discuss what I am continuing to learn about AI. What I am finding is that there is a plethora (ok, just a lot) of information out there.

The hot topics include health care breakthroughs, productivity gains, harder-to-detect scams, privacy and surveillance concerns, national security threats and even catastrophic risks. But the hottest topic is job loss.

The big question everyone wants answered is: Will AI replace us, or will it make us more productive?

The answer to both questions is yes.

There will be disruption in the workforce, and there will be greater productivity and new jobs created. We know what robots are and the physical work they can do. I think of AI as the brain robot. AI can think, write, compose, create art, calculate, analyze and drive cars, to name a few.

What will the net effect be? Nobody really knows.

I see AI as VUCA on steroids: VOLATILE, UNCERTAIN, COMPLEX AND AMBIGUOUS.

Changes are happening at an incredible speed. The optimist says, "Embrace change." The doubter says, "I believe in change. You go first."

WE HAVE BEEN HERE BEFORE

Nevertheless, these changes will not happen overnight.

Think back to the 1990s and the beginning of the Internet age. People did lose jobs. Typists, travel agents, bank tellers, publishers and retailers were all affected. But it did not happen all at once, and the Internet also created entirely new industries and millions of jobs that few people could have imagined beforehand.

Guess what year the first iPhone was released?

2007. Less than 20 years ago.

When Steve Jobs introduced it, the idea was essentially to combine an iPod, a phone and an Internet communicator into one device.

Did anybody know what an app was before then? More importantly, did anybody have any idea how many businesses and jobs would eventually be created around apps?

Then came social media. It didn't just change how we communicate. It created an enormous new digital advertising economy and entirely new businesses built around content, e-commerce, influencers, data analytics and digital marketing. It also gave companies of every size the ability to reach customers around the world at a fraction of the cost of traditional advertising.

Look at Amazon. In 2007, its annual sales were just under $15 billion. By 2025, sales had grown to more than $700 billion.

Did anybody see that coming?

Tesla delivered its first production vehicle in 2008. At the time, few people imagined the impact electric vehicles would eventually have on the automobile industry.

Self-driving cars? Are you kidding me?!

The point is that transformational technologies create consequences we simply cannot forecast at the beginning. Some are beneficial. Some are disruptive. And some are frightening.

SO WHAT IS AI DOING RIGHT NOW?

That is where this gets interesting.

I recently read several articles by New York Times economics reporter Ben Casselman that helped put my own uncertainty into perspective.

In A.I. Is Reshaping the Economy. Good Luck Measuring How, Casselman explains something remarkable: We cannot even agree on what AI is doing to the economy today. Some data suggest AI is eliminating jobs while other data suggest it is creating them. It may be increasing productivity, or the gains may not be showing up yet. Even economists studying this closely are struggling to measure what is happening in real time.

That sounds a lot like VUCA to me.

Another article, Nearly 200 Economists and Tech Leaders Warn of A.I. Threats, describes a statement signed by leading economists, AI researchers and Nobel laureates warning that AI could transform the economy faster than previous technologies. Their message is not simply that AI is dangerous. It is that the potential transformation is so large, and could happen so quickly, that businesses and policymakers need to start preparing now.

That distinction is important.

Then I read Stocks and the Economy Are Increasingly Relying on the A.I. Boom, by Casselman and Joe Rennison.

This is where the opportunity and the risk really become clear.

There has already been an extraordinary amount of money invested in AI, and trillions more are expected over the next several years. Why are some of the smartest and largest technology companies in the world spending that kind of money?

ROI.

They believe the eventual return on investment will justify it.

Not every investment will pay off. Many won't. But I believe many will.

Technology adoption often follows what economists call a J-curve. Initially, companies can actually become less productive as they experiment with new technology, train people and figure out how to incorporate it into their operations. That is the downward part of the J.

Then they figure it out.

Productivity accelerates and the companies that learned how to use the technology effectively begin pulling away from those that didn't.

The early innovators will succeed.

THERE IS ANOTHER SIDE

AI and technology are already helping fuel both the stock market and the broader economy. AI-related capital spending has become a significant contributor to economic growth, while AI-linked companies represent an enormous share of the value of the S&P 500.

That is great news as long as it keeps going.

But concentration creates risk.

When this much investment, economic growth and stock market value become connected to one technology, expectations matter enormously. If AI investment slows, expected returns fail to materialize or some new technology comes along, and it always does, things could get bad fast.

That is why I find myself alternately amazed, confused and frightened by what I am reading.

There are forecasts that AI could ultimately have a greater economic impact than the Industrial Revolution, but unfold over a much shorter period of time. While it feels like we are already moving at hyper-speed, I believe the transformation will still phase in over time.

And the changes will be both good and bad.

WHAT DOES THIS MEAN FOR MANUFACTURERS?

How will AI impact metal manufacturers?

I use AI for research, but not for my writing. In researching this topic, I asked Claude about some of the most important applications for manufacturers.

The answers included predictive maintenance, production scheduling, identifying bottlenecks, improving manufacturing practices, quality control and process control.

And that is only the beginning.

The more you learn about AI and begin implementing the right changes now, the better positioned your business, and your job, will be for what comes next.

THE OPTIMIST AND THE PESSIMIST

Technology and AI will have a mind-bending, but I hope not mind-breaking, impact on our lives and the economy. Whatever is being reported or developed today may be ancient news in a very short period of time.

The optimist in me sees cures for diseases happening much sooner. Productivity advancing at a faster rate. More jobs being created than lost. New industries and opportunities we haven't even imagined yet.

The pessimist in me sees jobs disappearing. Terrorists finding new ways to create chaos. More sophisticated attacks involving infrastructure, power, water systems, chemicals and biological threats. Increased surveillance and greater control over our lives.

Which one will be right? Probably both. That is why I keep coming back to the same description.

AI is VUCA: VOLATILE, UNCERTAIN, COMPLEX AND AMBIGUOUS on steroids.

The tip of the AI iceberg is rapidly approaching. I just hope we're not on the Titanic.

INFLATION

Inflation remains weaker and reduces the need for the Fed to raise rates in September

• The Consumer Price Index (CPI) headline inflation rose just 0.1% in July from June and declined on an annual basis to 3.4% from 3.5%. Core inflation, excluding food and energy, was up 0.2% from June and declined to 2.5% on an annual basis. Core CPI matched its five-year low from February. This news, along with slower labor growth, reduces the chances of the Fed raising rates in September.

• Personal Consumption Expenditures (PCE), the inflation measure preferred by the Fed, declined 0.1% in June. Core prices, which strip out the volatile food and energy categories, rose just 0.1% in June. On an annual basis, headline PCE was 3.7% and core PCE was 3.3%. Inflation remains above the Fed's target, but the monthly numbers were encouraging.

• The Producer Price Index (PPI) was unchanged in July from June. This brought the annual wholesale inflation rate down to 4.7% from June's 5.5%. Core prices, excluding volatile food and energy, edged up 0.2% for the month, while the annual rate declined to 4.2% from June's 4.7%.

• GDP for Q2 dropped to 1.5% from 2.1% in Q1. The good news was that Core Real GDP, which includes consumer spending, business fixed investment and home building while excluding more volatile categories such as government purchases, inventories and international trade, grew at a 3.9% rate in the second quarter. That was the fastest pace in more than three years, and Core Real GDP is now up 2.6% from a year ago.

MANUFACURING

Solid expansion continues

• The ISM Manufacturing PMI rose to 55.6 in July from 53.3 in June. The index has now expanded for seven consecutive months. AI-related capital investment, the reshoring of production and increased defense procurement continue to spur the expansion. Fifteen of the eighteen major manufacturing industries reported growth in July. All of the major measures of activity increased for the month, with the production index spiking to 58.5 from 52.2, the highest level since 2021. New orders increased to 56.7 and order backlogs rose to 55.5, having grown each month in 2026 after more than three straight years of contraction. For the first time in 34 months, the employment index moved into expansion at 52.2, up from 49.7 last month. However, half of the 18 industries reported employment growth while the other half remained in contraction.

• Core industrial production declined 0.1% in June, despite continued strength in the AI hot spots. Production of high-tech equipment, fueled by investment in AI and the reshoring of semiconductor production, increased 0.4% in June. High-tech manufacturing is up 11.1% in the past year, the fastest annual rate of any series, and is growing at an even faster 15.5% annualized rate over the past three months. Meanwhile, manufacturing of business equipment is up 5.5% in the past year, outpacing the 1.1% gain in overall industrial production and signaling a broader reindustrialization.

• U.S. core capital goods orders continued to rise, up 0.6% in June and 11.0% in the past year, the largest annual gain in more than four years. The increase was led by computers and electronic products (+3.1%), primary metals (+1.1%) and electrical equipment (+0.9%). Notably, orders for computers and electronic products are up at a 23.8% annualized pace through the first half of 2026, second only to primary metals at 28.0%. Orders for fabricated metal products and industrial machinery declined last month. However, over the past year these categories are up 10.6% and 14.4%, respectively.

• Shipments of core non-defense capital goods, a key measure of business investment used in calculating GDP, rose 1.9% in June and were up at an 11.1% annualized rate in Q2 versus the Q1 average. Business investment has shown continued strength, with core shipments consistently rising over the past year, driven by a more favorable tax environment and the data center buildout. The massive capital spending on AI, projected to reach almost $700 billion this year, has been a tailwind for GDP for the past two quarters and will likely continue to be for some time.

• Core consumer spending rose 0.3% in June, down from 0.6% in May. Personal income rose 0.2%. The yellow flag here is the personal savings rate, which tracks how much after-tax income is not consumed. It fell to 2.7% in June, the lowest reading since the COVID era in 2022 and, before that, the Great Financial Crisis in 2008. At some point, consumption will fall.

• U.S. civilian aircraft equipment production showed overall gains in June, backed by steady commercial output. Boeing delivered an estimated 59 aircraft and Airbus delivered 89, despite broader factory orders declining 0.3%. ITR expects the growth trend to generally rise through at least 2028, although growth will slow in late 2027 and early 2028.

• The NFIB Small Business Optimism Index rose 2.4 points in July to 99.8, moving above its 52-year historical average of 98.0 for the first time in several months.

• Nonfarm payroll employment decreased by 23,000 jobs in July as the unemployment rate dropped to 4.1%. The government also revised job growth down for both May and June.

• Construction spending declined slightly in June.

• Car and light truck sales dropped slightly in July to an annual rate of 16.3 million units from 16.5 million in June. ITR sees this trend remaining relatively flat through 2028.

• The Shapiro Nonferrous Scrap Activity Index, which tracks daily purchases from the same accounts across our nine locations and represents a diverse industrial customer base, showed no change in July based on our twelve-month trailing average.

The monthly data will continue to ebb and flow, but the longer-term trends remain encouraging for manufacturing and the broader economy.

CHINA

Technology is not creating a strong economy

At the turn of the century, China was producing much of the cheap consumer goods the world wanted with plentiful hand labor.

The game has changed.

I have previously discussed China's "dark factories," which are automated almost entirely by robots and AI. They don't need many people and, in some cases, they don't even need lights.

A recent Wall Street Journal article, China's New Export Engine: Supplying the Factories of the World, describes the next stage of this transformation. With major advances in AI and robotics, China is shifting from producing cheap consumer goods to exporting the higher-value intermediate and capital goods that underpin manufacturing around the world.

In the first five months of 2026, China's exports of intermediate and capital goods rose 25% and 12%, respectively, from a year earlier. Together, exports of these goods increased by more than $175 billion from the prior year, helping push China's trade surplus to a record $1.2 trillion.

The shift threatens advanced economies. Germany, one of the world's great manufacturing economies, now imports more advanced capital goods from China than it exports there.

China is competing by offering similar products at discounts of 30% to 50% compared with products manufactured elsewhere. In addition, their quality and customer support are very good.

Countries threatened by this growth are responding with tariffs in hopes of slowing it down.

This makes me wonder: Will the rest of the world ever be able to catch up?

We will see.

China, however, is still threatened by its domestic economy.

The country continues to struggle with a severely weakened property sector that the government will not allow to reach bottom. Allowing property values to fall to true market levels could create enormous problems for the banks holding that debt and potentially require significant refinancing.

The population is also shrinking and rapidly aging. Social services for the elderly and underemployed remain limited, while many of the best jobs are concentrated in the technology sector, which is not large enough to employ everyone who needs work.

Real estate has traditionally represented the greatest percentage of Chinese household wealth. Prior to the real estate bust, it represented roughly 70% of family wealth. That figure has fallen substantially as property values have declined. Property investment alone declined 18% in the first half of 2026 compared with the same period in 2025.

The employment picture is also troubling. China's official unemployment rate is around 5%, but other estimates put the actual rate considerably higher. Youth unemployment became such a problem that the government temporarily stopped publishing the statistic before changing the way it was calculated.

Meanwhile, the number of people working in flexible employment, including gig work, is expected to reach 320 million in 2026, accounting for more than 40% of urban employment.

Domestic consumption represents close to half of the Chinese economy. Fearful consumers continue to save rather than spend, adding to China's deflationary pressures. Domestic consumption growth remains extremely weak.

China's GDP officially expanded 4.3% in the second quarter, marking its slowest growth since the end of 2022. However, outside analyses continue to question China's official economic statistics. Some point to weaker energy consumption and other indicators as evidence that actual economic growth could be considerably lower.

So we continue to see a tale of two Chinese economies.

On one side is an increasingly sophisticated manufacturing and export machine powered by automation, robotics and AI. On the other is a weak domestic economy dealing with a property crisis, demographic problems, cautious consumers and employment challenges.

President Xi is certainly aware of these problems, but meaningful reforms to strengthen the Chinese consumer have been limited.

China may be getting much better at producing what the rest of the world wants.

The bigger question is whether it can build an economy that gives its own people the confidence to consume.

The tale of two Chinese economies will continue for some time.

METALS

The AI Impact

The trillions of dollars being spent on AI infrastructure, data centers and the additional power they require will continue to support aluminum demand well over the next five years and into the future. In addition, aluminum demand from the defense industry and other manufacturing remains strong.

The Shapiro Nonferrous Scrap Activity Index is primarily focused on aluminum and represents a diverse manufacturing customer base across multiple regions. Since the post-pandemic period, volumes have remained in a very tight range, generally within +/- 3%. Despite all the volatility in the broader economy, manufacturing volumes have been remarkably consistent.

On the aluminum supply side, even with Gulf-region producers down, worldwide primary production in June fell only 1.5% from a year ago. Chinese production was up 3.8% in the first half of the year, and other Asian countries are also increasing production.

Meanwhile, Edward Meir of Marex reports that LME inventories are at their lowest level this century and include Russian metal that is not available to much of the market. Shanghai metal stocks are greater than LME inventories and remain healthy. Based on these factors, Meir forecasts August LME prices in a range of $3,130 to $3,430.

Harbor views the technical breakout above $3,300 LME on August 10 as opening the door to $3,600 by late September at the latest. They also point to tighter aluminum supply and improving worldwide demand. Longer term, Harbor sees $4,000 or higher as the ultimate target in the current trend.

The PMTA for July dropped $.20 along with the LME. August 1 spot prime aluminum was up $.10 from July 1, while the Midwest premium remained within a two-cent range. Surprisingly, aluminum did not follow the $30 spike in oil prices in July, nor did it decline significantly when oil fell. The consensus is that aluminum is now following its own fundamentals more than oil prices.

August prime scrap prices are very close to July spot prices, which held up even though July prices were $.40 lower than June. Secondary aluminum prices also remained steady.

Copper prices were up $.32 per pound and nickel prices rose $.43. Stainless steel and ferrous prices were also relatively unchanged.

CLOSING

AI is the economic beast.

It is one of the major reasons our economy continues to perform better than many expected. People with 401(k) accounts and money invested in markets and funds are seeing their wealth and savings grow. Technology stocks are spread throughout many of those funds and portfolios. These companies are mostly very profitable, and they continue pushing the stock markets to record highs.

It is great while it lasts.

But bull markets don't last forever.

Artificial Intelligence astounds me and frightens me. The instant information available is generally correct, incredibly useful and sometimes amazing. The ability to solve problems, fix things and accomplish everyday tasks can simplify our lives in ways we could not have imagined just a few years ago.

But AI can also amplify bias, enable discrimination and be used to create chaos.

All technology is a double-edged sword. AI will be used to do extraordinary things, and unfortunately, it will also be used by people who want to do harm. We will undoubtedly face crises created or made worse by AI.

My hope is that the good will more than offset the chaos.

The optimist in me believes it will.

We are only seeing the tip of the AI iceberg. What lies beneath the surface is bigger, more complex and far more uncertain.

I just hope we're steering the Titanic in the right direction.

"AI won't replace humans, but humans who use AI will replace those who don't"—coined by OpenAI CEO Sam Altman

"Success in creating effective AI could be the biggest event in the history of our civilization. Or the worst." — Stephen Hawking