Good afternoon. Here’s your Economic Early Warning Report for Friday, 12 September 2025.
EXECUTIVE SUMMARY
- Despite bad August jobs numbers, virtually no bank is talking about recession, while many expect trendline growth to resume next year. They do note the jobs market is softening, but also expect August’s bad numbers to be revised upward.
- Virtually all banks expect a Fed rate cut next week of somewhere between .25-.50%, with several saying the Fed is willing to tolerate higher inflation to support the job market.
- Lastly, Credit Agricole is not concerned about “Sell America”: “[T]here is no evidence of a diversification of flows out of the US, in a blow to the so-called ‘Sell America’ trade… We do not believe there will be a massive redirection of capital flows from the US to somewhere else on aggregate.”
SELECTED COMMENTARY
- BANK OF AMERICA:
- “Scores on the Doors: YTD gold 38.0%, global stocks 25.4%, bitcoin 23.0%, US stocks 12.0%.. commodities 3.7%, cash 3.0%, US dollar -10.1%, oil -13.2%. Zeitgeist I: ‘Fed cutting at highs…I’m staying long stocks until we start worrying about the midterms next spring.’ .. The Biggest Picture: US nominal GDP up 54% since 2020, strongest upswing since WWII; but nominal GDP growth peaking in ’25, will slow from 6% p.a. to 4% on weaker government spend & labor market” [Flow Show, 11 SEP]
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- “Total card spending per [household] was up 1.8% y/y in the week ending Sep 6…Y/y spending growth was strongest in online retail, transit, general merchandise and restaurants in the week ending Sep 6.” [BofA on USA, 11 SEP]
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- “In a vacuum, the deterioration in the labor data would make us concerned about a downturn. In a vacuum, the rebound in consumer spending over the last months would suggest that activity is running at or above trend… An optimistic take on the data flow would be that consumer spending has historically led job growth, rather than vice versa. Therefore,the labor market could recover in coming months, to match the gains in spending. Indeed, job growth was stronger in July than in May-June, and some clients have argued to us that August payrolls are likely to get revised up… It’s possible that spending will collapse under the weight of anemic/negative job growth. After all, real spending was down from Dec 2024 to Jun 2025. So,it’s plausible that July and August were just a blip. Renewed weakness in spending could precipitate more job losses, which would further weigh on spending, and so on. For now, though, we remain cautiously optimistic. Fingers crossed.” [Morning Market, 11 SEP]
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- “US Equity Strategy’s US Regime Indicator strengthened for its second month in August, signaling a Recovery phase (the team waits two months for signal confirmation). The indicator has flip-flopped between a Downturn and Recovery since February 2022 amid volatile macro signals, inventory and demand whipsaws.” [Trading Catalysts, 08 SEP]
- CREDIT AGRICOLE:
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- “Almost exactly one year after the start of its current easing cycle, the Fed is on the verge of cutting rates again next week. The sense of déjà vu is reinforced by the evolution of the USD’s relative rate and yield advantage over the rest of G10 FX… The Fed should cut rates by 25bp but we doubt that it will endorse the excessively dovish market policy expectations, given the still tight US labour market and sticky US inflation… The weakness was partly driven by an earlier spike of market fears about the USD’s role as a reserve currency that is now fading. We still expect the USD to stabilise at current levels in the coming months and recover across the board in 2026.” [FX Weekly, 12 SEP]
- “Back in April, when the USD was down while UST yields were up, especially on the long end of the curve, market participants started questioning the US exceptionalism and the capacity of the US to attract massive capital flows. The ‘de-dollarisation’ theme gained steam while gold hit successive all-time highs. … [T]here is no evidence of a diversification of flows out of the US, in a blow to the so-called ‘Sell America’ trade… We do not believe there will be a massive redirection of capital flows from the US to somewhere else on aggregate… US growth should recover while inflation remains sticky… The ‘Sell America’ trade has so far failed to materialise.” [Economics Focus, 11 SEP]
- DEUTSCHE BANK:
- Will the expected September Fed rate cut actually reduce Treasury yields? “At this stage in the easing cycle (almost a year on from the initial Sep 2024 cut) it’s an almost even split. In the 13 distinct rate cutting cycles we have since 1966, the 10yr yield is lower in 6 of 13, and higher in the other 7. It’s higher today as well, so that would actually make 8/14 higher at this point… They expect that the negative supply shock of higher tariffs and lower immigration will raise inflation, whilst the political pressure on the Fed could lead to more aggressive cuts that steepen the curve.” [COTD, 12 SEP]
- “Starting with the US CPI report, headline inflation rose by +0.4% month-on-month (m/m) in August, up from +0.2% in July and above the +0.3% consensus forecast… However, it was outsized increases in volatile categories such as airfares (+5.8% m/m) and lodging (+2.3% m/m) that pushed the core reading higher, with the Cleveland Fed’s trimmed mean CPI measure rising by a more moderate +0.26% m/m. Indeed, with airfares CPI not entering into the Fed’s preferred core PCE inflation measure, our US economists’ projection for August core PCE has declined to +0.22% m/m after the CPI print… Alongside CPI, initial jobless claims for the week ending 6 September rose to +263k, well above the +235k expected. The state of Texas accounted for most of this increase so some of this spike was likely due to temporary distortions.” [EMR, 12 SEP]
- “American entry-level workers in the occupations most exposed to AI are already experiencing a 13 percent relative decline in employment.. [S]ince the launch of ChatGPT in November 2022, there has been a 6 percent decline in employment for workers aged 22 to 25 in the occupations that can most be augmented by AI – such as software engineering and customer services – even after controlling for firm-specific shocks. By contrast, there has been a 6 percent to 9 percent increase in employment for more experienced workers in the same professions.” [COTD, 11 SEP]
- GOLDMAN SACHS:
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- “Our macro tools suggest that the market is pricing a resilient growth outlook and that the bigger macro dynamic in recent weeks has been the market’s continued shift towards pricing a more dovish Fed… [T]here are risks on two fronts. The first is if something causes the market to worry more about recession… The central macro question now is whether the labor market slowdown morphs into a recessionary dynamic. The longer that the labor market holds in, the more the risk of recession should fade as the main shocks to the economy move further into the rear view mirror, so the next few months are likely the period of ‘maximum risk’. The second risk is that if growth holds up, the market might worry that it has priced too much Fed easing.” [Global Markets Daily, 11 SEP]
- “The weaker-than-expected August employment report confirmed our view that the US labor market has softened materially. While we expect an upward revision to the August payroll estimate next month—as has been the case in 12 of the past 15September employment reports—and believe that the BLS’ large downward revision to payroll growth for the April 2024-March 2025 period likely somewhat overstates the extent of labor market softening… We think the weak jobs report has sealed the case for a 25bp rate cut at next week’s FOMC meeting… We expect that this easing, together with a fading tariff drag and more expansionary fiscal policy, will gradually steer the US economy back toward potential next year.” [WTOM, 10 SEP]
- JP MORGAN:
- “Our model-based estimates of US recession probability based on near-term economic indicators at around 1/3rd is a touch lower than our top-down assessment of 40%, which incorporates the impact from tariffs and immigration policy. The model recession probability from equity markets and credit spreads is around 15%.” [JPM View, 05 SEP]
- SOCIETE GENERALE:
- “The latest US labour market report is likely to have pushed the Fed’s assessment of the balance of risks of missing one of its two mandates further and decisively towards employment… Our base case for the 17 September FOMC rate decision is now of a 50bp cut, and another, most likely of 25bp in December.” [On Our Minds, 07 SEP]
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