{"id":230476,"date":"2025-09-15T09:45:00","date_gmt":"2025-09-15T13:45:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/campus\/?p=230476"},"modified":"2025-09-16T04:18:11","modified_gmt":"2025-09-16T08:18:11","slug":"economic-update-week-of-september-15-2025","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/economic-update-week-of-september-15-2025\/","title":{"rendered":"Economic Update: Week of September 15, 2025"},"content":{"rendered":"\n

Growth<\/h2>\n\n\n\n

The U.S. economy grew 3.3% annualized in 2Q25, although trade distortions continued to mask slowing momentum. Consumer spending rose 1.6%, while business fixed investment and government spending rose 5.7% and shrunk 0.2%, respectively. The housing market remained challenged as residential fixed investment fell 4.7%. Turning to the more volatile components, inventories fell, removing 3.3%pts from GDP growth, while a sharp decline in imports caused net exports to boost growth by 5%pts. Excluding these components and government spending, real final sales to private domestic purchasers rose 1.9% annualized in 1H25 vs. 3.1% in 2H24. All to say, policy uncertainty weighed on economic momentum in 1H25.<\/p>\n\n\n\n

Jobs<\/h2>\n\n\n\n

The August Jobs report showed a sharp slowdown in hiring momentum, with nonfarm payrolls rising by just 22k (cons. 75k). Revisions made the picture look even more bleak, removing 21k jobs from the prior two months. In fact, employment now contracted by 13k in June, the first decline in payrolls since December 2020. Services continued to dominate at the sector level, while the closely watched unemployment rate rose to 4.3%. Elsewhere, wages rose 0.3% m\/m and 3.7% y\/y. With downside risks to employment growing more apparent, the FOMC is all but certain to cut interest rates in September.<\/p>\n\n\n\n

Profits<\/h2>\n\n\n\n

The second quarter earnings season has come to a close. 2Q25 EPS came in at $67.03, representing y\/y growth of 10.7% and q\/q growth of 5.3%. Looking at the three main sources of EPS growth, sales, margins and shares contributed 5.4, 6.2 and -0.8 percentage points, respectively, to y\/y growth. 81% of companies beat estimates, and earnings came in 8.0% above consensus. While we’re not seeing the impact of tariffs yet, management teams are thinking through supply chains, price increases, capex and hiring plans. Tech earnings were especially important this quarter, with the Mag 7 contributing 52% of the y\/y earnings growth.<\/p>\n\n\n\n

Inflation<\/h2>\n\n\n\n

The August CPI report showed a pickup in inflation, with headline CPI rising 0.4% m\/m (2.9% y\/y) and core rising 0.3% m\/m (3.1% y\/y). Food and energy both ran hot, as expected, with notable gains in groceries and gas prices. Core goods prices rose 0.3% m\/m, with some import-intensive categories seeing large price increases, but inflation elsewhere was more mixed. Core services also rose 0.3% m\/m. In the details, shelter inflation rose 0.4%, while travel-related categories accelerated, including a 5.9% jump in airfares. While the ultimate impact of tariffs on inflation remains unknown, recent labor market weakness could cause the Fed to cut rates multiple times by the end of the year.<\/p>\n\n\n\n

Rates<\/h2>\n\n\n\n

At its July meeting, the Federal Reserve voted to hold the federal funds rate steady at a range of 4.25% to 4.5%, but the decision was not unanimous. For the first time in over 30 years, two members dissented, voting to cut rates by 25bps. During the press conference, Powell’s comments leaned hawkish. He described the labor market as in balance, citing the low unemployment rate as a key measure to watch. He also noted that inflation remains above target, even excluding tariff impacts. Powell’s more recent commentary, however, has leaned more dovish, putting greater emphasis on recent labor market weakness. A September rate cut is now the base case, but Powell is navigating a fragile balance between inflation, labor market risks and credibility.<\/p>\n\n\n\n

Risks<\/h2>\n\n\n\n