Economic Update: Week of November 10, 2025

Growth

The U.S. economy grew 3.8% annualized in 2Q25, although trade distortions masked slowing momentum. After revisions, consumer spending rose by a solid 2.5%, while business fixed investment and government spending rose 4.4% and shrunk 0.1%, respectively. The housing market remained challenged as residential fixed investment fell 5.1%. Turning to the more volatile components, inventories fell, removing 3.4%pts from GDP growth, while a sharp decline in imports caused net exports to boost growth by 4.8%pts. Excluding these components, real final sales to domestic purchasers rose 1.9% annualized in 1H25 vs. 3.3% in 2H24. All to say, while the U.S. economy has been resilient, policy uncertainty weighed on economic momentum in 1H25.

Jobs

While the September Jobs report was delayed due to the government shutdown, 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 bleaker, 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 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 Fed is set to continue easing policy.

Profits

The 3Q25 earnings season is well underway. With 82% of market cap reporting, consensus is estimating year-over-year (y/y) EPS growth of 11.9%. Looking at the three main sources of EPS growth, sales, margins and shares are expected to contribute 7.3, 5.5 and -1.0 percentage points, respectively. From a sector perspective, tech and financials are leading the pack, while health care and energy companies struggle. The consumer sectors are also under pressure as discerning customers dampen demand and tariffs increase costs.

Inflation

The September CPI report came in softer than expected with headline and core CPI rising 0.3% and 0.2 m/m, respectively, and both measures up 3.0% y/y. At the headline level, much of the strength came from a 4.1% spike in gasoline prices. Core goods prices rose by a firm 0.2% m/m but remained under control despite tariff pressures. Softer shelter inflation helped limit further gains in core services, which saw inflation slow to 0.2% m/m. In fact, owners’ equivalent rent rose at its slowest sequential pace since 2020. However, inflation excluding shelter accelerated. Despite the softer report, headline inflation remains above target and is trending unfavorably. With official data lacking and alternative employment indicators showing labor market weakness, the Fed will likely take a cautious approach and cut interest rates twice more in 2025.

Rates

The Federal Reserve voted to lower interest rates by 25bps, lowering the federal funds rate target range to 3.75% to 4.00%. There were both dovish and hawkish dissents, but Chair Powell’s comments leaned hawkish. He emphasized that there were “strongly differing” views regarding how the Committee should proceed in December, and that the meeting is “far from” a foregone conclusion. With pressures in the funding market growing more apparent, the Committee announced that it will be ending its QT program on December 1. An improvement in employment conditions or a spike in inflation could keep the Committee on hold, but if conditions evolve as we expect, a December rate cut remains likely. That said, should data disruptions persist into December, the Committee may opt to hold rates steady to wait for more clarity.

Risks

• Tariffs could challenge economic growth while putting upward pressure on inflation.
• Market volatility will likely remain elevated until policy uncertainty turns to policy clarity.
• Slowing economic growth could weigh on earnings and forward guidance.

This weekly update provides a snapshot of changes in the economy and markets and their implications for investors.

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Originally Posted November 10, 2025 – Economic Update

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