US Economy: Weekly Commentary – September 8, 2025

US Market Review

Government bond yields fell on expected Fed cuts, with the 2-year Treasury hitting yearly lows. Equities rallied, led by the “Magnificent 7.” The dollar weakened, crude dropped, and gold and Bitcoin rose.

Government bond yields dropped sharply as markets priced in expectations for a Federal Reserve rate cut at the upcoming meeting. Investors now assign a 100% probability to a September reduction, with an 8% chance it will be 50 basis points, and fully anticipate cumulative cuts of 100 basis points by March 2026. The 2-year Treasury yield fell to its lowest level of the year.

Equity markets rallied over the week, with micro-cap and small-cap stocks rising 0.75% and 1.10%, respectively, and large caps gaining 0.33%. The "Magnificent 7" advanced 2.37%, led by Alphabet’s more than 11% surge to all-time highs following a federal court ruling in its favour in an antitrust case. The decision preserved key assets such as Chrome and Android, allowed strategic agreements to continue, and removed exclusivity contracts, which the market viewed as supportive of Alphabet’s core business and synergies. Sector performance was mixed: energy fell over 3%, financials dropped 1.70%, and utilities declined 1.00%, while communication services and consumer discretionary rose 2.95% and 1.50%, respectively.

In currency and commodity markets, the U.S. dollar weakened 0.28% against the euro. WTI crude declined 3.19% amid weak U.S. job growth, rising inventories, and potential OPEC+ production increases, indicating softer demand and higher supply. Gold surged 3.51% to new highs, while Bitcoin advanced 1.40%.

US Market Views Synopsis

In August, US jobs slowed sharply. Full-time positions fell. Part-time jobs rose. Unemployment increased. Manufacturing weak. Services grew modestly. Trade pressures limited overall economic momentum.

The August US labour market showed a marked slowdown, with nonfarm payrolls rising just 22,000, far below expectations, with a 597,000 increase in part-time jobs, while full-time employment fell 357,000. Unemployment edged up to 4.3%, underemployment rose to 8.1%, average weekly hours fell to 34.2, and wage growth slowed to 3.7%, reflecting broad weakness across sectors. Job gains were limited to education, health services, leisure, hospitality, and retail, while construction, manufacturing, transportation, and professional services struggled, with payrolls outside resilient sectors declining for four consecutive months, prompting near-certain expectations of a Federal Reserve rate cut. Manufacturing contracted for the sixth month, with weak production, employment, and backlogs, partially offset by modest growth in new orders, while services expanded moderately, driven by business activity and orders despite labour constraints and high prices. Trade tensions and tariffs continued to pressure both sectors, limiting momentum in the broader economy.

Labour Market

August US jobs slowed sharply. Nonfarm payrolls rose 22,000. Full-time positions fell by 357,000. Part-time rose 597,000. Unemployment 4.3%. Hours 34.2. Wage growth 3.7%. Broad sector weakness.

The August US employment report signalled a pronounced weakening in labour market conditions, with nonfarm payrolls rising by only 22,000 compared with expectations of 75,000 and a three-month average of 29,000. All net job creation came from part-time positions (+597,000), while full-time employment contracted sharply by 357,000, underscoring the deterioration in job quality. Although prior months were revised higher by a net 29,000, this did little to offset the weak trend. The unemployment rate edged up to 4.3% from 4.2%, underemployment rose to 8.1% from 7.9%, average weekly hours declined by 0.1 hour to 34.2 hours from 34.3, and annual wage growth slowed to 3.7% from 3.9%, indicating weaker labour demand across multiple measures. Sector performance was uneven, with modest gains in private education and health services (+46,000), leisure and hospitality (+28,000), and retail trade (+11,000), while construction, manufacturing, transportation, and professional and business services were broadly flat or negative. Excluding the three resilient sectors, payrolls have fallen for four consecutive months, highlighting a lack of momentum in industries traditionally regarded as the engines of US job creation and raising concerns that labour market weakness is becoming more entrenched.

We anticipate continued weakening in the US labour market. Market expectations now assign a 99% probability of a Federal Reserve rate cut at the September FOMC meeting.

Business Activity

U.S. manufacturing contracted for six months, with weak production, employment, and backlogs, while new orders showed slight growth. Services expanded modestly, driven by business activity and orders, despite labour and price pressures.

U.S. manufacturing contracted for the sixth consecutive month in August, with the ISM Manufacturing PMI rising slightly to 48.7, remaining below the 50-point threshold for expansion. Production returned to contraction at 47.8, and employment stayed weak at 43.8. Inventories broadly declined, while customers’ inventories remained low, signalling soft demand but potential for future production. Supplier deliveries slowed to 51.3, reflecting ongoing supply chain pressures, and input prices continued to rise at 63.7, driven by steel, aluminium, and tariffs, though at a slower pace than in July. Backlogs of orders remained weak at 44.7, while new orders expanded at 51.4, and new export orders rose modestly to 47.6. Among the six largest manufacturing industries, only Food, Beverage and Tobacco Products and Petroleum and Coal Products reported growth, while the remainder, including Transportation Equipment and Computer and Electronic Products, continued to contract. Tariffs were cited as a major constraint, raising costs, disrupting supply chains, and reducing competitiveness. Overall, the sector faces ongoing cost pressures, cautious hiring, and shrinking backlogs, though growth in new orders provides limited optimism.

The ISM Services PMI increased 1.9 points to 52.0 in August, marking the third consecutive month of expansion. Growth was driven by stronger business activity, 55 compared with 52.6 in July, new orders, 56 compared with 50.3, and inventories, 53.2 compared with 51.8. Imports rebounded sharply to 54.6, while employment remained in contraction at 46.5, and the Backlog of Orders fell to a 16-year low of 40.4. Supplier deliveries slowed modestly to 50.3, and prices remained elevated at 69.2. Twelve industries reported growth, led by Information, Wholesale Trade, and Arts and Recreation, while four, including Accommodation and Food Services and Construction, contracted. Commentary highlighted tariff-related cost pressures and cautious business sentiment, even as firms prepared for higher demand during the holiday season. Overall, services expanded steadily, tempered by labour constraints, low backlogs, and persistent price pressures.

We expect the manufacturing sector to remain steady amid trade uncertainty, with weak production and employment partially offset by modest new orders, while services continue expanding, supported by strong internal demand.