Economic Outlook - October 2025
- In a recent release, the Bureau of Labor Statistics (BLS) issued a benchmark revision indicating that job growth from March 2024 to March 2025 was overestimated by 911,000 jobs — the largest downward adjustment on record. This significant revision underscores a cooling labor market, with clear signs of slowing job growth and rising uncertainty.
- Despite the uncertainty, the economy continues to grow. The U.S. Bureau of Economic Analysis reported real Gross Domestic Product (GDP) increased at an annual rate of 3.8% in the second quarter of 2025. This marks a strong rebound from the 0.6% decline in the first quarter. The growth was primarily driven by an increase in consumer spending and exports, while private inventory investment and residential fixed investment declined along with a downturn in imports. The upward revision from the previous estimate reflects stronger-than-expected consumer activity and trade performance.
- Inflation continues to hover above the Federal Reserve’s target range, underscoring persistent price pressures across key sectors. According to the latest Consumer Price Index (CPI) report, U.S. inflation rose to an annual rate of 2.9% — the fastest pace since January — fueled by rising costs for shelter, food, and energy. This growing disconnect between cooling labor market conditions and elevated inflation adds complexity to the Fed’s efforts to engineer a soft landing for the economy.
- The September Institute for Supply Management (ISM) manufacturing report showed continued contraction in the sector, with the Purchasing Managers Index (PMI) rising slightly to 49.1. The reading is an improvement from prior months; however, a reading below 50 still suggests activity in the manufacturing and service sector is shrinking. While production and supplier deliveries improved, weak new orders and employment suggest ongoing demand challenges and cautious hiring, pointing to a fragile and uneven recovery in manufacturing.
- The Federal Reserve cut the benchmark federal funds rate by 0.25 percentage points, bringing it down to a range of 4.00% – 4.25%. This marks the first rate cut since December 2024. Fed Chair Jerome Powell noted that the labor market is “cooling off,” and the central bank’s focus has shifted from inflation risks to employment concerns. Additionally, the Fed signaled the possibility of two additional rate cuts by year-end, contingent on incoming economic data.
Sources: Bloomberg, Bureau of Labor Statistics, Dow Jones Publishing, FactSet, Institute for Supply Management, U.S. Bureau of Economic Analysis
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