US Economy: Weekly Commentary – September 29, 2025

US Market Review

Treasury yields fell, short and intermediate maturities rose. Stocks declined, including the “Magnificent 7.” Dollar strengthened. Oil and gold surged. Bitcoin fell. Markets price October rate cuts.

Long-term U.S. Treasury yields retreated, while short- and intermediate-term maturities posted modest gains, reflecting stronger-than-expected economic data. Key drivers included an upward revision to second-quarter GDP, a surprise increase in durable goods orders, stronger home sales, and a decline in unemployment claims. Market expectations continue to price in interest rate cuts beginning in October.

Stock markets moved lower. Microcaps were flat week over week, small caps fell 0.67%, and large caps declined 0.30%. The “Magnificent 7” dropped 1.00%, led by Alphabet, which fell more than 3% during the week. Materials led sector losses with a 2.20% decline, while energy gained 3.90% and utilities gained 2.20%

The U.S. dollar strengthened 0.35% against the euro. WTI crude surged 3.94% to a seven-week high, driven by an unexpected drawdown in U.S. inventories, geopolitical disruptions including Ukrainian strikes on Russian facilities, and uncertainty surrounding Venezuelan, Iraqi, and Iranian exports. Gold advanced 3.03%, extending its year-to-date gain to 44%, the strongest annual increase since 1979, as both investors and central banks led by China boost allocations. Bitcoin retreated 4.30%

US Market Views Synopsis

The U.S. economy rebounded in Q2’25 with 3.8% GDP growth. Consumer spending and exports drove gains. Inflation, weaker investment, housing fragility, and declining sentiment signal slower momentum ahead.

The U.S. economy rebounded strongly in Q2 2025 with real GDP rising 3.8%, its fastest pace in nearly two years. Growth was driven by resilient consumer spending, solid private demand, and net exports boosted by a sharp drop in imports. Business investment contributed modestly while inventories dragged. Sectoral performance was mixed, with strong goods and services output offset by declines in housing and government activity. Inflation pressures persisted, with PCE up 2.1% and core at 2.6%. Corporate profits rose only slightly. Forward-looking data point to softer momentum as September PMIs eased across manufacturing and services, reflecting weaker demand, rising inventories, slower hiring, and tariff effects, though sentiment improved on hopes of lower rates. Housing gained short-term strength as new home sales surged on incentives, but high prices, weak builder sentiment, and falling permits highlight fragility. Consumer sentiment fell 5% in September, weighed by inflation and labour concerns, underscoring risks to spending and the broader outlook.

GDP

The U.S. economy rebounded strongly in Q2 2025, led by resilient consumer spending, solid private-sector growth, mixed investment signals, and persistent inflation pressures.

The U.S. economy posted stronger-than-expected growth in the second quarter of 2025, with real GDP rising 3.8% annualised, the fastest pace in nearly two years, rebounding from a 0.6% contraction in the first quarter. Growth was supported by resilient consumer spending, which increased 2.5% and contributed nearly half of GDP growth, and a 2.9% rise in real final sales to private domestic purchasers, reflecting solid underlying demand. Fixed business investment added 0.77 percentage points, while inventory reductions subtracted 3.44 points. Imports fell sharply by 29.3%, helping net exports contribute 4.83 points, while government spending remained largely unchanged. By sector, goods-producing industries surged 10.2%, private services grew 3.5%, and government output fell 3.2%, while residential investment declined 5.1%, resulting in overall real gross output growth of 1.2%. Inflation pressures remained steady, with the PCE price index up 2.1% and core PCE at 2.6%, while real GDI growth matched GDP at 3.8%.

Corporate profits rose modestly by $6.8 billion, moderating the strong growth picture. Recent data were mixed: durable goods orders increased 2.9%, core capital goods grew 0.4%, but shipments slipped 0.3%, signalling softness in investment. The goods trade deficit narrowed to $85.5 billion from $103.6 billion in July, reflecting the sharp drop in imports. Looking ahead, the Atlanta Fed projects third-quarter growth at 3.3%, though economists expect momentum to ease later in 2025 due to a softer labour market, persistent inflation, and broader structural and political uncertainties. Medium-term growth is expected to remain below 2%, despite supportive fiscal and monetary policies.

We expect the U.S. economy to slow slightly in the coming months due to a weakening labour market, persistent inflation, and ongoing political uncertainties.

Business Sentiment

US business growth slowed in September as PMIs fell. Composite was 53.6, Manufacturing 52, and Services 53.9, while inventories rose, hiring slowed, price pressures eased, and business sentiment improved.

US business activity growth moderated in September, with both manufacturing and services sectors continuing to expand but at slower rates. The Composite PMI fell to 53.6, below the 54 estimate and down from 54.6 in August, marking a three-month low, while the Manufacturing PMI declined to 52.0, slightly below the 52.2 estimate and down from 53.0 prior, and the Services PMI eased to 53.9, below the 54 estimate and down from 54.5 in August. Softer demand, heightened competition, and ongoing tariffs constrained firms’ ability to raise selling prices, which increased at the slowest pace since April, even as input costs remained elevated, particularly in manufacturing. Factory inventories surged to record levels amid weaker-than-expected sales, while backlogs of work fell in manufacturing but rose in services, reflecting differing sector dynamics. Employment growth slowed across both sectors, with more firms reporting difficulty filling vacancies, and manufacturers more focused on cost-cutting. Supply chain delays, partly linked to tariffs and imports, limited input buying, while suppliers’ delivery times lengthened to the greatest extent in four months. Encouragingly, business sentiment improved to a four-month high, supported by expectations that lower interest rates could offset some of the challenges posed by tariffs and broader policy uncertainty. Overall, while output growth has slowed from mid-year peaks, the third quarter maintained the strongest average expansion since late 2024, with survey data consistent with an approximate 2.2% annualized GDP growth.

We expect US business activity to be lower than previously anticipated due to softer demand, ongoing tariffs, rising inventories, and slower hiring, despite easing price pressures and improved business sentiment.

Housing Sector

New home sales rose 20.5% MoM to an annualised 800,000, building permits fell 2.3% MoM, and existing home sales edged down 0.2% MoM, highlighting ongoing supply constraints.

In August, new home sales increased 20.5% MoM, substantially exceeding expectations of a 0.3% decline and the prior revised -1.8%, with the median home price rising to $413,500 and monthly supply declining to 7.4 months from 9.0, reflecting robust absorption despite elevated inventories. The annualised sales pace reached 800,000 units, the fastest since early 2022 and well above the consensus estimate of 650,000, supported by lower mortgage rates, builder incentives, and promotional discounts that stimulated buyer activity. Nevertheless, market fundamentals show softening, as the latest NAHB survey reported 39% of builders reduced prices in September, the highest post-COVID share, and builder sentiment for future sales remains subdued, albeit slightly improved in response to lower rates. While demand persists, it is highly dependent on incentives, raising questions about the durability of current momentum. Building permits fell 2.3% MoM to a post-COVID low, down 9.9% YoY, highlighting ongoing supply constraints, while existing home sales edged down 0.2% MoM (vs. -1.5% expected), with the median price up 2% YoY to $422,600 and monthly supply steady at 4.6 months, emphasising the market’s balance between incentive-driven demand and structural limitations.

We expect the sector to remain subdued in 2025 due to labour market weakness, low builder sentiment, persistently high home prices, and elevated mortgage rates.

Consumer Sentiment

Consumer sentiment fell 5% in September, broad-based except among stockholders, with inflation and labour concerns weighing heavily; year-ahead expectations dipped to 4.7%, and long-run rose to 3.7%.

Consumer sentiment confirmed its early-month reading, easing about 5% from August but remaining above the lows recorded in April and May. September’s decline, though modest, was broad-based across age, income, education groups, and all five index components, with the exception of consumers holding larger stock portfolios, whose sentiment held steady; those with smaller or no holdings saw declines. By political affiliation, sentiment fell roughly 9% among independents and 4% among Republicans, while improving for Democrats. Both macroeconomic and personal expectations weakened, reflecting increased concerns about labour markets, business conditions, income prospects, and personal finances. Persistent inflation remains a key source of frustration, with 44% of respondents citing high prices as eroding their financial situation, the highest share in a year, underscoring pressure from both elevated inflation risks and potential labour market softening. Inflation expectations shifted only slightly, with year-ahead expectations easing to 4.7% from 4.8%, while long-run expectations rose for the second consecutive month to 3.7%, well below the April peak of 4.4%.

We expect inflation and a weakening labour market to continue pressuring consumer sentiment, while external risks add further uncertainty to household expectations and overall economic outlook.