September Economic Update

Market Summary

The major large capitalization indices were once again relatively quiet for the second month in a row while small capitalization significantly outperformed. Weakening jobs data took the spotlight with inflation, consumer spending, housing data, and tariffs were heavily scrutinized. For the month, the S&P 500 gained 1.91%, the technology heavy Nasdaq 100 index gained 0.92%, while the Russell 2000 moved sharply higher by 7.30%. (1)

Labor Market

August non-farm payrolls were very weak, with only ~22,000 jobs added which was far below expectations and the lowest since the initial COVID response back in 2020. The unemployment rate rose to ~4.3%, which is the highest in about four years. Revised data for previous months (June/July) also showed downward revisions. (2)

Weakening employment growth plus rising unemployment set the stage for monetary easing with the Federal Reserve lowering interest rates, but inflation remains well above comfort zones meaning the Fed will act cautiously to balance these forces. As of today, the Federal Reserve has decided to cut interest rates by 0.25% citing a notably weakening labor data, a stagnating real estate market, and moderation in GDP growth which is largely reflected on consumer spending slowing down. (3)

One notable and highly impactful trend has been large companies – especially within the technology sector – accelerating layoffs and replacing those jobs with artificial intelligence (AI). Microsoft, Oracle, Amazon, Google, and Meta have laid off thousands of workers just within the past few months. This trend is undoubtedly contributing to the alarming unemployment numbers and fewer job openings that we have been seeing as of late and will likely accelerate moving forward. (4)

Inflation

Inflation rose in August with the headline Consumer Price Index (CPI) moving up to 2.9% year-over-year, up from 2.7% the prior month. Key drivers of inflation included grocery prices, gas, apparel, and housing/rental costs. Tariff-driven cost passthrough to consumers has become more visible in goods prices. On the other hand, wholesale prices (Producer Price Index, PPI) showed a softer picture. PPI rose less than expected, and monthly wholesale prices actually saw a dip on some readings. (5)

Tariffs

The Trump Administration continued to expand tariffs. Notably, India saw its “reciprocal” tariff rate raised to 50%. Average effective U.S. tariff burdens (including retaliation effects) continue to be very high — estimates from Yale’s Budget Lab indicate the average effective rate is the highest since the 1930s with consumer-price effects (short run) potentially ~1.5% to 1.8%. Tariff revenues lifted net customs receipts significantly—one month (August) produced record levels – helping reduce the federal deficit compared with a year earlier. (6)

Looking Forward…

Roughly 70% of Gross Domestic Product (GDP) is predicated upon consumer spending. When the job market becomes tight and unemployment rises, consumers begin shutting their wallets and tighten up on spending habits. This, along with the impact of tariffs and inflation, also known as “Stagflation”, are the primary concerns moving into the latter part of this year.

---

Monthly Financial Tip:

Credit card debt is an ongoing financial drain too many people accept. Paying off a credit card with a 12-20% APR is a win akin to getting a 12-20% return on your money.

---

Citations:

1. Ycharts, Invesco, Rueters

2. Rueters, Sept 05, 2025

3. Federal Reserve, Sept 17, 2025

4. Investopedia, Sept 13, 2025

5. Federal Reserve, Sept 17, 2025

6. The Budget Lab, Aug 07, 2025

Disclaimers:

This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.