What Changed?
On October 10, the Bureau of Economic Analysis reported that U.S. GDP grew just 1.2% in Q3 2025, the weakest pace since early 2023. The data signals that while inflation has cooled, economic activity is clearly losing momentum.
Consumer spending slowed as higher credit costs hit household budgets.
Corporate guidance for Q4 earnings turned negative across multiple sectors.
The Federal Reserve hinted at a possible 25 bps rate cut in December, citing “slower but stable” activity.
The S&P500 fell 0.7% on the release, with retail and industrial names leading losses.
The Numbers
GDP Growth: +1.2% (vs. +2.8% prior) — Q3 2025 BEA Advance Estimate
Retail Sales: +0.2% (vs. +0.7% prior) — September Census Bureau data
Average Weekly Hours: 34.2 (down from 34.4) — BLS September Employment Report
Corporate Guidance: 58% of S&P500 firms issuing negative Q4 outlooks — FactSet Earnings Insight, Oct 2025
Fed Funds Rate: 4.25–4.50% — Federal Reserve policy range as of October 2025
Why It Matters
The data underscores a key trade-off: inflation control is being bought with slower growth. Consumers are pulling back, businesses are warning on profits, and the Fed faces pressure to cut rates faster — risking credibility if inflation proves sticky.
Investor relevance: Slowing earnings growth raises the risk of multiple compression into year-end.
Second-order effects: Value and defensive sectors could outperform growth stocks as investors rotate to safety.
Risk flags: A weaker labor market or surprise inflation rebound could force the Fed into a no-win scenario — easing too fast or too slow.
Takeaway
Base case: The U.S. economy is slowing, not breaking — but softness in spending and earnings suggests the landing may be bumpier than expected.
Positioning:
Focus on quality, defensive equities (healthcare, staples, utilities).
Maintain moderate duration exposure ahead of Fed easing but avoid overextending into long bonds.
Watchlist (dates):
Oct 31: Core PCE inflation — will shape the Fed’s December policy path.
Nov 7: October jobs report — key gauge of whether softness deepens.
Actionable lens:
Use market weakness to add selectively to high-quality income positions while keeping dry powder for volatility into year-end.
— Lauren Brown
Editor, American Ledger