The Economic Outlook for Q4 2025

The economy is showing two different sides right now. On the one hand, job growth is starting to slow pretty sharply. On the other hand, economic growth remains quite strong. Today's video will dive into this macroeconomic picture and discuss what it means for investors.  

Labor Market vs. Economic Growth 

So, starting off with this discussion of the labor market versus economic growth. The economy added 27,000 jobs per month from May through August, which is a pretty low number. We see that the unemployment rate is now 4.3%, which is still not all that high, but it has been ticking up here over the past few months. 

On the economic growth side, the Atlanta branch of the Federal Reserve provides an estimate of third quarter GDP of 3.8% annualized. So, what we are seeing is slower hiring, but faster economic growth. And this is not a normal state of affairs. Typically, when you see faster growth, you also tend to see a pretty robust labor market. And there's at least three potential reasons for the situation we find ourselves in. 

• First would be demographics. We're seeing more retirements, which would mean a smaller labor pool.
• Second, we've seen immigration slow down, which means fewer new workers are entering the labor force.
• Third, we've seen a surge in productivity, and that could be as a result of artificial intelligence.  

No matter the reason, we are seeing increased productivity, which means just a more efficient economy, which means fewer jobs are needed to support the growth that we are seeing. And it's still uncertain as to whether this is a short-term phenomenon, or is this kind of the new normal, where we don't need to see as many jobs created in order to see robust economic growth. 

Inflation Trends 

Moving over to the story of inflation and Federal Reserve policy, we've seen inflation rising again, so CPI rose 0.4% in August for a year-over-year number of 2.9%, which is the fastest year-over-year rise we've seen since January. And this rise in prices has been driven by food, electricity, and imported goods. 

So, the Fed kind of has a dilemma in the sense that we're seeing slower job growth, but we are also seeing higher prices. And so, in response to this situation, the Federal Reserve did cut rates in September by 0.25%, moving the fed fund's target range to 4% to 4.25%. 

In his statement after this announcement, Chair Powell said that they cut rates in order to support the job market, which makes sense, but he also was quick to mention that inflation remains a risk that's still out there. So, the Fed is kind of walking a tightrope in the sense that they're trying to support growth without reigniting inflation. 

Outlook for Growth 

To sum up, I think it's fair to say that the economy is slowing, but is not yet stalling, or is not certainly in a recession, or anything along those lines yet. 

For investors, I think it's important to just stay disciplined in your long-term plan, whatever the noise you might see out there in the financial press. Staying disciplined in your plan is what will really drive long-term success. And if you are interested in a deeper dive on any of these topics, I'd encourage you to check out our full written economic outlook, which we will link to in the description for this video. 

If interested in a deeper dive on these topics, check out our latest Quarterly Outlook. 

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