US Economic Outlook: September 2025

In today's economic outlook, we are going

to discuss the latest labor market release

and what it means for the trajectory of the US economy.

I'm gonna take this opportunity to walk us

through the underlying details

that really drive the narrative

that this is a fundamental moment for the economy

and a shift in the economic trajectory.

So to really dive into that, I'm gonna start

by looking at the headline metrics

that had an overall impact on the market

day of the data release.

We saw non-farm jobs rise by just 22,000.

That was well below the 75,000 consensus estimate

of be totally transparent.

It was below our own estimate, which was closer to 62,000.

Now the unemployment rate also ticked up from 4.2% to 4.3%.

It was really only part of the story.

So when we look at broader measures of unemployment

and underemployment, for example,

the use six rate from the Bureau of Labor Statistics,

which includes not only those who are unemployed

but also discouraged workers as well as those

who are working part-time for economic reasons,

there was a jump up to 8.1%,

which is actually the highest level we've seen since

October, 2021.

Uh, this isn't just a week month of data.

The release in conjunction

with the significant downward revisions last month implies

that we're seeing sustained deceleration

that began in April.

And the three month average job creation is now running at a

low of around 29,000.

And that's pretty much recession level low.

That's really, really dour

for the overall economic environment.

Perhaps the most shocking is

that June employment was also revised down into negative

territory showing the labor market has been weaker than we

initially anticipated, even facing the first period in terms

of month over month contraction since 2020.

Now, what makes this particularly concerning is the fact

that it's not just one industry

really leading the charge here.

It's actually the breadth of the industries

that are contributing to the unfortunate jobs reading

that we just received, as well as

that we've been receiving now for a few months

with those downward revisions.

And this tells us that the softening isn't really more

of a onetime anomaly and one month anomaly,

but it's more of a trend

that is proving unfortunately persistent.

And we see this particularly when we dive in to the sector

by sector breakdown.

So to look at this data more, more in detail,

what we see is that there's a clear divide between

what people need and what businesses are willing

to invest in and how we see

that playing out in the overall employment numbers.

So to start with the resilience side,

essential services added 58,000 jobs

and this was really led by healthcare

and education with 46 positions added.

Now this makes sense because people still need medical care,

they still need education regardless

of economic uncertainty.

We also saw a bit

of a bright spot on on the headline level when we look at

consumer discretionary sectors like leisure and hospitality

and retail where we saw 38,500 jobs added.

But this likely reflects continued recovery towards pre

pandemic employment levels rather than a response

to robust consumer demand as both

of these sectors remain in terms of employment well

below their pre COVID trends.

So looks very positive on, on first pass,

but when we actually dive into the underlying data trends,

see that it's more about normalization,

less about robust performance, when we shift

to a more troubling aspect, the productive economy, we see

that there is some contraction,

meaningful contraction that's occurring.

So goods production and trade shed over 30,000 jobs.

Um, unfortunately, manufacturing, wholesale, trade

and construction all declined on a month over month basis.

We also saw business infrastructure services.

The, the backbone of corporate activity

cut about 21,000 positions

with professional business services

really leading the decline there.

Now, unsurprisingly,

government also pulled back cutting 16,000 jobs on net.

So government is a conglomerate of state, federal,

and local, but the cut was primarily driven

by the federal work force reductions.

Now when we see this sort of sector by sector analysis,

when we see the overall arching picture,

what really comes top of mind is the fact

that this is not just one

or two sectors that is facing hardship.

This is really broad based

and what we see with the private sector numbers in the

government numbers is that private sector weakness

is coming at a time or in tandem with also fiscal restraint.

So neither the private

or public sphere is really making up in terms of job games

or um, overall spend.

When we look at the economy as a, as an aggregate,

this pattern becomes exactly what we would anticipate

with an economic inflection point, right?

We have essential services which is quite robust.

We have some interesting dynamics when we look at overall

consumer consumer spending or discretionary dynamics.

And then of course we have a lot

of month over month contraction

and other employment metrics which are really core

to the overall production side of the economy.

Taken together. This labor market data really implies

that the Federal Reserve is in a very

tricky position, right?

So last month we talked a lot about

what we're seeing in the overall trajectory when it comes

to the inflation numbers.

We see really sticky services inflation,

we're seeing reaccelerating goods, inflation.

Neither of those things are great to see.

On the other hand, we now have back

to back labor market reports, which show quite a lot

of weakness, especially when it it

comes to our hiring numbers.

And this puts the fed in a really difficult position

because they have a dual mandate.

They not only need to seek price stability,

they also need to sort of ensure that we are as close

to full employment as we can get.

So what that really means in practice is

that we want both price stability as well

as labor market resiliency.

Powell specifically noted in his Jackson Hole speech

that the shifting balance of risks may warrant adjustments

to the Federal Reserve's policy stance.

And that balance has absolutely shifted decisively in these

last two labor releases.

The sectoral breakdown

that we've just discussed really reinforces this case.

We're seeing employment contraction

and business investment heavy areas

and production while only really essential services are

holding up in a meaningful way.

And this pattern typically requires monetary support

to prevent a deeper economic retreat.

So even with core inflation running at 3.1%,

which is a full percentage point above the fed's, 2% target

the magnitude of labor market softening

that we're seeing creates a very clear case

for accommodation from the Federal Reserve.

Now as mentioned, the Fed's dual mandate requires 'em

to balance price stability with full employment.

So today's report suggests that they're going to

be in a position where they'll feel the need

to prioritize supporting the labor market, especially given

that wage growth remains relatively modest at 3.7%.

So why I call that out is

because if we saw a pickup in wage gains, this would

or could potentially create concern that if we cut rates

or if we're a little bit too accommodative,

we may get ourselves embroiled in a wage price spiral.

The wage data that's coming out currently

and the trend that we're seeing doesn't

support this concern.

And so this puts the Federal Reserve in a little bit of a,

a better position to be accommodative moving forward.

Now, regardless of all of this,

as I noted a few a few minutes

before, it doesn't change the fact

that the Fed is in the midst of a

complex policy puzzle, right?

They're sort of facing some mild statuary concerns.

We've been talking about this a lot, especially since May

where we have a weakening labor market,

we have reaccelerating inflation, we have

below trend economic growth.

And what that looks like

for the Federal Reserve is quite a tricky picture

as they have to be very intentional in

how they thread the needle for monetary policy.

Now the Fed needs

to support employment while managing inflation expectations

and that's what makes it so difficult.

Now, based on today's data, they'll clearly err on the side

of gross support in the short term.

But this sets up potential challenges if inflation

accelerates further or if inflation expectations

become meaningfully unor

for the broader economy.

This suggests that we're transitioning from the post

pandemic boom to really a lower gross equilibrium.

Now, as I mentioned, when we have sort

of these stagflationary elements,

it's particularly challenging for the Fed, the far cry from

where we were in the 1970s,

but it is still quite the policy conundrum as Powell

and the rest of the FOMC board really seek

to keep inflation under control while also seeking

to be accommodative, given the flashing signals

that the labor market is really, um,

really giving us as economists.

With all of that in mind, a very tricky situation, right?

Very unenviable position for the Federal Reserve.

But if I could really leave you

with three key takeaways about what this means

for the economic trajectory as we make our way into the end

of 2025 and into 2026, first

and foremost, a September rate cut is more likely than not.

This point in time, it almost feels a little bit inevitable

and it's really the start

of an easing cycle rather than a one-off adjustment.

So markets should expect additional cuts likely in December

at 25 basis points

and potentially into 2026

as we move towards a more neutral federal funds rate.

Second, this report

validates the feds shift from being mildly restrictive

to more accommodative.

So Powell's Jackson Hole framework now has empirical backing

and the employment mandate will take precedence over

inflation concerns.

Now, I say this with a big caveat,

but that is for now, right?

It's gonna be really, really interesting

and important to watch

how the economy responds moving forward to price pressures

as well as how the labor market continues

to play out over the next several months.

Third, the US economy has fundamentally shifted momentum.

Most likely we are not in a recession at this time,

but we are clearly in a deceleration phase that is going

to require policy support.

So the soft landing that we were on track

for nine months ago,

absolutely evolving into something a bit more complex,

a meaningful slowdown with stagflationary elements

that are absolutely going to test policymakers ability

to balance competing objectives

for companies navigating this transition.

What this looks like is focusing on operational efficiency

and cash preservation while positioning

for opportunities in resilient sectors.

So the sectoral divide

that we've seen today suggest businesses should prioritize

investments in essential services

where they can while deferring non-critical expansion

until economic momentum stabilizes.

What this looks like in practice is actively monitoring

real-time data, engaging in active scenario planning,

and then being very well positioned to respond

and dynamically adjust strategy quite quickly so

that you are in the most sort of efficient modal

to respond to a very dynamic

Economy, which is going to be very key as we make our way

through the next 3, 6, 9 months.

It's going to be especially key

to not just look at a headline number,

but really look under the hood

and the nuance that is, um,

that is really showcasing itself in this economy

because that's going to be where the potential

for growth really lies.

So with that, if this is something

that you are interested in and you would like

to learn more about how board may facilitate you in doing

any of these things, please feel free to reach out

for a demo visit board com to do so.

And with that, I just wanna say thank you

for your time as always.

It was a pleasure.