US Economy: Weekly Commentary – October 06, 2025

US Market Review

U.S. Treasury yields fell. Gold nears reserve dominance. Equities rose broadly. Oil dropped on supply concerns. The dollar weakened. Bitcoin surged amid risk aversion signals.

U.S. Treasury yields declined last week, led by the short end of the curve. Notably, Treasury bonds now offer higher yields than U.S. equities, marking a significant shift from trends seen over the past two decades. Gold is about to surpass U.S. Treasuries as the main reserve asset held by central banks worldwide for the first time in 30 years.

Equity markets advanced, with micro- and small-cap stocks leading gains at 2.00% and 1.86%, respectively, while large caps rose 1.10%. The "Magnificent 7" edged down 0.05%. By sector, healthcare rebounded sharply, climbing nearly 7%, followed by utilities at 2.45%, while energy declined 3.40%.

The U.S. dollar weakened 0.35% against the euro. WTI crude oil fell 6.89% amid expectations of rising supply and softening demand. OPEC+ is likely to increase output in November, with Saudi Arabia advocating a substantial boost and Russia a more moderate rise, while Iraq’s long-dormant pipeline to Turkey resumed flows. Rising U.S. inventories, slower refinery activity, and seasonal demand declines further weighed on prices. Gold gained 3.23%, with the gold-oil ratio signalling caution: falling oil reflects weakening economic confidence, while rising gold indicates heightened risk aversion. Bitcoin surged 9.20%.

US Market Views Synopsis

U.S. manufacturing contracted. Services held steady. The labour market weakened, with slowing hiring and confidence. The Fed is expected to cut rates to support economic growth.

In September 2025, U.S. economic activity showed mixed signals. Manufacturing contracted for the seventh consecutive month, with the ISM Manufacturing PMI at 49.1, as production rose slightly but new orders, employment, and inventories declined amid soft domestic and export demand, tariff pressures, and supply chain bottlenecks; only Petroleum and Coal Products expanded, while most sectors contracted, and input prices remained elevated though slightly lower than previous months. The services sector held steady with a Services PMI of 50, business activity near breakeven at 49.9, new orders just above 50, and employment down to 47.2, reflecting labour shortages, persistent supplier delays, and uneven growth across industries. The labour market showed further weakness, with job openings rising only slightly to 7.23 million, hiring slowing, and consumer confidence dropping to a five-month low. Amid slowing demand and rising risks to employment, the Federal Reserve is expected to prioritise economic support, potentially reducing rates to stabilise growth.

Business Activity

U.S. manufacturing contracted in September amid soft demand, supply bottlenecks, and price pressures. Services held steady at breakeven, facing weak employment, slower deliveries, and uneven industry growth.

Economic activity in the U.S. manufacturing sector contracted in September 2025, according to the latest ISM Manufacturing PMI report. The Manufacturing PMI stood at 49.1, down slightly from 48.7 in August, marking the seventh consecutive month of contraction. While production edged higher, new orders fell, employment continued to decline, and inventories decreased, reflecting caution among manufacturers. Supplier deliveries slowed further, signalling ongoing supply chain bottlenecks, and input prices remained elevated, although slightly lower than in previous months. Among the 18 manufacturing industries surveyed, only Petroleum and Coal Products experienced growth, while 11 industries reported contraction. Respondents highlighted soft domestic and export demand, tariff pressures, and difficulties sourcing materials as key factors constraining growth. Overall, manufacturing remains under pressure, with uneven performance across sectors and cautious optimism for recovery.

The U.S. services sector remained essentially unchanged in September, with the Services PMI registering 50, the breakeven point between expansion and contraction. Business activity slightly dipped into contraction at 49.9, while new orders remained just above the expansion threshold at 50.4. Employment continued to decline at 47.2, reflecting challenges in hiring and retaining qualified staff, while supplier deliveries slowed further to 52.6, indicating extended lead times. Prices paid by services organisations rose to 69.4, showing persistent inflationary pressures, while inventories contracted to 47.8. Of the 17 service industries surveyed, 10 reported growth, led by Accommodation and Food Services, Health Care and Social Assistance, and Information, while seven industries—including Construction, Real Estate, and Retail—contracted. Overall, the report points to moderate or uneven growth, with continued supply chain pressures, labour shortages, and cautious optimism in backlogs and new orders.

We expect U.S. manufacturing to remain under pressure from tariffs, supply chain constraints, and softer new orders, while services are likely to remain steady. We anticipate both sectors maintaining modest growth as economic conditions stabilise.

Labour Market

U.S. job openings rose slightly to 7.23 million, hiring declined, consumer confidence fell, and weakening labour conditions may prompt the Fed to cut rates amid uncertainty.

U.S. job openings rose only slightly in August to 7.23 million, while hiring declined, underscoring a stagnating labour market that could prompt the Federal Reserve to cut rates further despite resilient consumer spending. Weaknesses were concentrated in trade, transportation, and food services, partly tied to immigration enforcement, though layoffs remained subdued as employers held on to staff. The quits rate fell, signalling softer wage growth and diminished confidence. Survey data reinforced this trend, with the share of consumers viewing jobs as “plentiful” at its lowest since early 2021 and overall confidence dropping to a five-month low. Job openings are slipping quickly, with a fall below 6.5 million seen as an early warning and a drop toward 5 million having usually preceded recent recessions. Such declines typically reflect companies halting hiring and conserving cash, a dynamic that erodes consumer spending. With a potential government shutdown set to delay critical data, the Fed faces heightened uncertainty ahead of its late-October meeting but is increasingly likely to prioritise labour market stabilisation amid slowing demand and rising unemployment risks.

We expect the Fed to prioritize supporting the economy over inflation, reducing rates amid a weak labour market, slowing hiring, and declining consumer confidence.