Friday's jobs report was shocking but not surprising. It was a useful lens through which to view the overarching economic reality heading into the final months of 2025.
The big picture: We're living in an economy in which powerful policy winds are buffeting both the supply and demand sides of the economy, each with uncertain magnitudes and lags.
- It makes for unusually high uncertainty about how to interpret incoming data that covers the recent past — and makes forecasting even the near future a perilous exercise.
- In effect, business decision-makers are sailing through a sea in which extreme winds and crosscurrents are pushing in different directions at different moments.
State of play: Tariffs have been raised to a multiple of anything seen in most Americans' lifetimes, raising something like $30 billion a month in taxes that are coming from someone's pockets (U.S. importers, U.S. consumers, and international suppliers being the prime candidates).
- Tax legislation passed in July is designed to encourage a supply-side boost in investment, and includes spending increases on border security and tax cuts for households that will amount to demand-side stimulus in the months ahead.
- Deportations and restrictionist immigration policy mean there are fewer workers in the U.S., a cause of the flatlining in job growth evident in the last two jobs reports. This means both less supply of workers and less demand for the goods and services immigrants purchase (including housing).
- The Federal Reserve has resisted interest rate cuts all year, given the prospect of tariff-driven inflation, but now looks poised to relent in light of the sudden stop in job growth.
Zoom in: That constellation of forces helps explain why the economic data has been sending such mixed signals in recent weeks, with some pointing to recessionary alarm bells and others pointing to things being more or less fine.
- Employers added 123,000 jobs a month in the first four months of the year — but came to a near halt in May, adding only 27,000 jobs a month since then (with June bringing the first negative jobs month in 4 1/2 years).
- The manufacturing sector contracted in August for the sixth consecutive month, the Institute for Supply Management said last week, and anecdotes from its survey respondents pointed to supply chain challenges from tariffs as a major headwind.
Yes, but: The unemployment rate is still a low 4.3%, and weekly jobless claims, perhaps the best real-time indicators of layoff activity, remain subdued.
- GDP growth is tracking at a 3% annual rate in Q3, per the Atlanta Fed's GDPNow model.
Zoom out: What does this all mean if you're facing personal or business decisions with economic stakes, like a major purchase or investment?
- In high and unpredictable winds, the best advice for a sailor is to remain calm, make careful, short tacks and avoid oversteering. Heading into year's end, that advice applies more broadly.
