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Economic Commentary

Economic Commentary – August 25, 2025

August 25, 2025 by Jeanette Garretty, Chief Economist

The White House’s intense focus on the monthly labor market revisions by the Bureau of Labor Statistics (BLS) has muddied the debate over the true health of US employment and its near-term direction. Even without the revisions, there would be serious questions as to the policy implications of the nonfarm payroll numbers. For example, is the unemployment rate (which is derived from an alternative employment survey by the  Bureau of Economic Analysis) low because labor demand is strong, or is it low because labor demand is stagnant and the labor force is shrinking? After the Kansas City Federal Reserve’s Jackson Hole Symposium last week, it seems clear that Chairman Powell and the Board of Governors are increasingly worried about the correct interpretation of the numbers and starting to lean towards erring on the side of caution, i.e., providing some additional support for employment growth with lower interest rates. Cynical voices will suggest that this is a shift in attitude forced upon the Federal Reserve by politicians. However, it accurately reflects the conundrum faced by the Federal Reserve at potential turning points in the US economy: given the lagged effect of monetary policy (anywhere from 9 to 18 months by many estimates), policy changes made today must be for the economy that will exist many months from now.  Understanding labor market trends as the US enters the final months of 2025 is critical to understanding what will happen in the US economy in 2026.  

Data to Watch

  1. US New Home Sales for July, released Monday, August 25
  2. US Durable Goods Orders for July, released Tuesday, August 26
  3. US Q2 GDP Growth Rate, 2nd Estimate, released Thursday, August 28
  4. US Personal Consumption Expenditures (PCE) Price Index for July, released Friday, August 29
  5. US Personal Income and Spending for July, released Friday, August 29

Suggested Reading

  1. The Trade That Binds the Indian and American Economies
  2. Stagnant Job Market Is a Rising Risk for the U.S. Economy
  3. Trump immigration policy may be shrinking labor force, economists say

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