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September 8, 2025 – Friday’s employment report was a stinker, confirming an obvious slowdown in the labor market. The unemployment rate is the single most important indicator in America, a legacy of the Great Depression. The simple fact is our workforce drives growth. Without a growing work force the only tailwind is improved productivity. The Federal Reserve, always data dependent and therefore backward looking, is now set to start a series of cuts to the Fed Funds rate beginning next week. Hopefully, those cuts will abort any slowdown and get the economy back on course. Until evidence appears, stocks could experience higher volatility.

//  by Tower Bridge Advisors

Last month, after the Bureau of Labor Statistics issued a weak employment report for July coupled with downward revisions for prior months, President Trump fired the messenger, the head of the Bureau. The August numbers released Friday were even weaker with a reported jobs growth of just 22,000 and negative revisions to prior months. This time there was no messenger to shoot as the nominated replacement hasn’t received Senate approval yet. The message from the White House was to wait until next year when lots of new plants would be in production. Let’s hope.

Let me repeat a mantra I have said often regarding monthly employment reports. You always want to see strong employment growth, even if a weak number accelerates the likelihood of future interest rate cuts. Jobs are the engine of our economy. People work, they receive wages, and they spend what they earn. If no one is working, spending must come out of savings, until the well runs dry. Thus, regarding the employment report, you can’t make a silk purse out of a sow’s ear. More jobs are good. Fewer jobs are bad. It’s that simple.

One might argue that an overheated economy leads to inflation which leads to a whole host of problems. But that isn’t the case here. Wages rose 0.3% in August ($0.10 per hour) and were just 3.7% higher than a year ago. To the extent there is any inflation, and we will get a CPI report this week, it has more to do with tariffs than anything to do with the labor market. And the tariff impact by itself won’t be long lasting.

The jobs numbers announced Friday are even worse than the headline numbers suggest. 89% of the job increases in the private sector in 2025 to date have been in social assistance and healthcare. The rest of the private sector has added less than 10,000 jobs per month. Manufacturing has lost jobs for four straight months. Construction jobs are down. While the White House trumpets the future benefits of policy actions, so far tariffs and uncertainty outweigh the benefits of Executive Actions and the Big Beautiful Bill.

While the slowdown has been happening, the Federal Reserve, always data dependent and, therefore, almost always backward looking, has kept policy constant. With the Fed Funds rate in a range of 4.25%-4.50%, that means restrictive, hence, a slowing economy. Economists speculate as to what the neutral rate might be, that rate which neither stimulates nor restricts economic growth. There is no precise formula to define that number but it is increasingly clear that the current Fed Funds range is well above neutral. After the last employment report, I suggested three rate cuts of 25-basis points each would seem appropriate over the last three FOMC meetings of 2025. After Friday’s report, Fed Funds futures suggest that is now likely. A 50-basis point cut at next week’s meeting is possible. What is at least as likely is a 25-basis point cut with several dissents opting for more. Reality suggests the size of any one-month cut doesn’t matter as long as the rate gets to a range that implies neutral reasonably soon. The only argument against more hasty action is uncertainty about policy, particularly related to tariffs. For instance, by year end will there be a broad trade agreement with China or will Trump get frustrated with the Chinese and put triple digit tariffs back on the table? Next week’s likely rate cut will be the start of a series of cuts. But the last thing the Fed wants is for a few sharp cuts followed by the need to hike rates should there be an unexpected spike in inflation. The Fed almost always opts for caution unless there is a crisis (e.g. October 2008 or the spring of 2020 amid the Covid shutdown), and is almost always late whether it be raising or lowering rates.

With that said, a one or two month delay in policy moves doesn’t create a crisis. The Great Recession was the result of too much easy money and too much leverage in the years leading up to the collapse of Lehman, AIG and Fannie Mae, not a delay in lowering rates by a month or two.

Wall Street’s reaction to the weak employment report was muted. There are several reasons. First a weak jobs report was anticipated although the numbers were even a bit weaker than forecasted. Second, Wall Street loves low rates. Low borrowing costs together with expansive fiscal policy are stimulative, at least in the short-run, as long as short-term borrowing costs stay within a reasonable range. Hopefully, ZIRP (zero interest rate policy) is something I don’t have to endure in my remaining lifetime. ZIRP inflates asset prices but also leads to excess capacity and economic inefficiencies. Yet in the short-run, lower but reasonable rates serve to elevate P/E ratios and will likely lead to a shift of monies from cash and money market funds into asset classes, like equities, that benefit from lower rates.

But let’s stop there. Without employment growth none of this works. Right now, retail spending is solid and, while the unemployment rate crept up to 4.3% in August, it was still historically low. In short, consumers haven’t lost their confidence to spend, at least for now. Corporations are still growing profits. Higher profits and lower short-term rates almost always lead to higher stock prices.

We know growth is slowing. So far, there are no signs of recession. I talked about equilibrium last week. It’s fair to say, our economy remains in balance, still growing, albeit slowly, with modest inflation. Lower gasoline prices and small increases in shelter costs are keeping inflation contained. But if job growth tips into a negative number and consumer confidence teeters, things can unravel surprisingly fast. Clearly, the risks today have shifted from what they were just a few months ago. Employment growth beyond social assistance and health care is now stagnant. On September 30, over 100,000 Federal workers who opted for early retirement, will stop receiving pay checks. More people will be looking for work and there will be fewer job offerings. Today, over 25% of those receiving unemployment benefits have been looking for work for over six months. That percentage is rising. The upper class doesn’t feel the pain thanks to record stock and home prices. But middle and lower class Americans are feeling the pinch.

Rate cuts are needed and they are coming. Can they reverse a slowing trend? Logically they can. Can the Fed get ahead of the curve? History doesn’t provide a good answer. Certainly, the tumult surrounding the Fed over the next 6-9 months won’t help. September is seasonally the weakest time for stocks. The corporate economic reality today is that there is tremendous enduring strength related to increased spending for technology, mostly related to the growth in artificial intelligence. But away from the tech sector and those industrial sectors supporting its growth, the picture isn’t as bright. Uncertainty is rising and that suggests a volatile period ahead. September seems like a time to be a bit cautious.

Today, Pink turns 46, born in Abington Hospital outside of Philadelphia. Senator Bernie Sanders is 84, and American novelist Ann Beattie turns 78.

James M. Meyer, CFA 610-260-2220

Tower Bridge Advisors manages over $1.3 Billion for individuals, families and select institutions with $1 Million or more of investable assets. We build portfolios of individual securities customized for each client's specific goals and objectives. Contact Nick Filippo (610-260-2222, nfilippo@towerbridgeadvisors.com) to learn more or to set up a complimentary portfolio review.

# – This security is owned by the author of this report or accounts under his management at Tower Bridge Advisors.

Additional information on companies in this report is available on request. This report is not a complete analysis of every material fact representing company, industry or security mentioned herein. This firm or its officers, stockholders, employees and clients, in the normal course of business, may have or acquire a position including options, if any, in the securities mentioned. This communication shall not be deemed to constitute an offer, or solicitation on our part with respect to the sale or purchase of any securities. The information above has been obtained from sources believed reliable, but is not necessarily complete and is not guaranteed. This report is prepared for general information only. It does not have regard to the specific investment objectives, financial situation or the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed in this report and should understand that statements regarding future prospects may not be realized. Opinions are subject to change without notice.

Filed Under: Market Commentary

Previous Post: « September 2, 2025 – Equilibrium means balance but doesn’t define the size of a market. A steady unemployment rate, stable housing prices and a steady 10-year bond yield all suggest equilibrium, but beneath the surface, there are warning signs that require investor attention.

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  • September 8, 2025 – Friday’s employment report was a stinker, confirming an obvious slowdown in the labor market. The unemployment rate is the single most important indicator in America, a legacy of the Great Depression. The simple fact is our workforce drives growth. Without a growing work force the only tailwind is improved productivity. The Federal Reserve, always data dependent and therefore backward looking, is now set to start a series of cuts to the Fed Funds rate beginning next week. Hopefully, those cuts will abort any slowdown and get the economy back on course. Until evidence appears, stocks could experience higher volatility.
  • September 2, 2025 – Equilibrium means balance but doesn’t define the size of a market. A steady unemployment rate, stable housing prices and a steady 10-year bond yield all suggest equilibrium, but beneath the surface, there are warning signs that require investor attention.
  • August 28, 2025 – The July jobs report signaled a cooling labor market, with slowing growth and a slight rise in unemployment, yet consumer spending remains resilient despite retail price hikes caused by new tariffs. This mixed economic data creates a conundrum for the Federal Reserve as it balances its dual mandate amid political pressure and inflationary headwinds. Given this uncertainty and the S&P 500 trading near all-time highs, investors should brace for potential market volatility post Labor Day, as the Fed’s next policy moves will depend heavily on upcoming inflation and jobs data.
  • August 25, 2025 – The Fed’s shift in policy, as stated by Jerome Powell last Friday, moves away from a focus on inflation and more toward insuring full employment. Such a shift suggests more short-term rate cuts and a willingness to tolerate some inflation as long as it stays below 3%. A willingness to tolerate a bit more inflation may sound innocuous but it could lead to unanchored long-term inflation expectations and keep 10-year Treasury yields elevated. If so, the euphoria expressed in Friday’s market rally may have been a bit too exuberant.
  • August 21, 2025 – This Friday we will receive commentary from the Federal Reserve after its annual gathering in Jackson Hole, Wyoming. The central-bank gathering has sometimes been a venue for marking shifts in Fed policy. Last year Fed Chairman Powell used it to signal that rate cuts were coming, and followed through the next month. The Snake River, which runs through Jackson Hole, provides an apt backdrop for the Fed’s meeting where the waters can be turbulent and winding. In the meantime, technology stocks have retreated this week and a number of consumer-focused companies have provided both encouraging and uncertain signals.
  • August 18, 2025 – The noise of front-page news doesn’t seem to coincide with record stock prices. War, ICE raids, violent storms and tariffs may be the topics of the Sunday talk shows, but the stock market cares more about earnings and interest rates. Earnings are rising and interest rates are stable. Will that continue? Earnings growth should slow a bit as the full impact of tariffs hits. While the Fed Funds rates should start to decline this fall, markets will focus on changes in the 10-year Treasury yield more than the Fed Funds rate.
  • August 14, 2025 – The market is increasingly divided, with a strong AI-driven rally on one side and a weakening consumer economy on the other. This contradiction creates a significant risk of a sudden economic downturn or stagflation, as soaring tech valuations may be unsustainable without broader economic support.
  • August 11, 2025 – There is an expression that rationality requires separating the wheat from the chaff. In Wall Street, to be a successful investor, it is necessary to separate hype from reality. That is particularly important as speculative fever rises. Some of the hype is real; some is nonsense. Don’t simply follow consensus. As investors you invest in companies, not hype, not single products, hot today but cold as ice tomorrow. Think rationally and you will be a successful investor.
  • August 7, 2025 – Football is considered a game of inches. Consider the “Brotherly Shove,” popularized by the Philadelphia Eagles, which is a play used to gain very short yardage and advance down the field. In order to counter this offense, defensive opponents have employed various tactics, but without much success. Two consumer-focused companies, McDonalds and Disney, recently reported quarterly earnings, and are slugging it out on the field as consumer preferences change and these companies try to adapt.
  • August 4, 2025 – Confusing economic reports on GDP and the labor market can be decoded to show that growth in the first half of 2025 was muted while inflation was well contained before the full impact of tariffs. If those data trends continue, look for one to three 25-basis point rate cuts before the end of 2025. That outlook may change with subsequent data but it is increasingly clear that an economy that has proven so resilient may need a bit more help to offset the impact of tariffs and significantly lower population growth.

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