Top Client Questions: Weak Jobs Report, Market All-Time Highs, and Inflation

In this environment of mixed economic data, it's important to have a broader perspective.

Below are answers to questions you may have about the economy and what it may mean for the market and your portfolios.

What does the weaker labor market mean for the economy and the Fed?

Thanks for your important question about the recent jobs report and what it means for the economy. Labor market conditions directly affect growth, inflation, and Federal Reserve decisions. In turn, they can also affect the stock and bond markets.

Here are some key points that may help provide perspective:

• Only 22,000 new jobs were added in August, well below the 75,000 that economists had expected. As a result, job gains have only averaged 75,000 per month this year, well below the 168,000 per month in 2024.
• Perhaps more importantly, the last two reports have also revised down the number of new jobs added in recent months. This has revealed a weaker labor market than originally reported. August's report included a second downward revision to June's numbers showing the economy lost 13,000 jobs that month, the first negative figure since 2020.
• Despite slowing payrolls, the unemployment rate remains historically low at 4.3%. In a recent speech, Fed Chair Jerome Powell said the labor market is in a "curious kind of balance" where job growth has slowed but unemployment hasn't picked up significantly. In other words, hiring and the number of individuals looking for work have both decreased.
• The latest jobs numbers increase the likelihood and magnitude of Fed rate cuts. Market-based measures now expect the Fed to cut rates at each of its remaining three meetings this year. The Fed faces a delicate balancing act between supporting employment and controlling inflation, since it’s still unclear what the impact of tariffs may be.
• While weaker, these figures are much higher than what the economy has historically experienced during recessions and other crises. In fact, large swings in the labor market are typically due to external forces, such as the 2020 pandemic or the 2008 global financial crisis. Outside of these events, fluctuations in hiring activity are normal and are the result of many factors.

The included chart shows recent payroll data, which helps illustrate these employment trends and their importance as a key economic indicator that investors and policymakers watch closely to gauge economic health.

While the jobs numbers are important, investors should never focus solely on a single economic report. Instead, successful long-term investing involves looking at the broader economic trends and the economy's ability to adapt and grow over time.

Why are markets near all-time highs if the economy is showing signs of slowing?

Thanks for your important question about why markets are hovering near all-time highs despite some negative economic data, including the August jobs report. While the economy and the stock market are not the same thing, they are closely connected.

Here are some facts that address this question:

• It’s normal for the stock market to reach new all-time highs during market cycles. History shows that new highs do not necessarily mean the market is “due for a pullback.” What determines this is the strength of the underlying economy and corporate fundamentals.
• Recent jobs reports have shown signs that hiring activity has slowed in recent months. This can be problematic if this means consumers are in a worse financial position, and if it reflects economic concerns by companies.
• However, this needs to be put into perspective. Job growth has been quite strong over the past few years, and the slowdown due to inflation never materialized. The unemployment rate, at 4.3%, is still quite low by historical standards. It’s also important to note that employment data typically serves as a lagging economic indicator, reflecting changes that have already occurred in the broader economy rather than predicting future trends.
• Other indicators over this same period have been healthy. The GDP report showed that the economy grew by 3.3% in the second quarter, exceeding expectations. Corporate earnings have been robust with 80% of S&P 500 companies delivering positive earnings surprises.
• What’s ironic is that markets often act as if “bad news is good news.” This is because a weaker jobs report raises the odds that the Fed will cut rates this year. Thus, it’s important to not react to headlines alone, but to understand the full context.

The included chart shows how the stock market tends to follow corporate earnings over time, illustrating that earnings growth is a key driver of long-term market performance. While short-term economic data can create volatility, the underlying strength in corporate profitability helps explain why markets can continue advancing.

Remember that markets look forward and often reflect the cumulative strength of corporate earnings rather than individual economic data points, making patience and long-term perspective essential for investment success.

Do the latest inflation reports show the effects of tariffs?

Thanks for your important question about tariffs and their potential impact on inflation and prices. This is top-of-mind for investors since it drives monetary policy, market expectations, and financial planning.

Here are some key points to consider:

• The Producer Price Index jumped 0.9% in July 2025, the largest monthly increase since June 2022, with annual PPI reaching 3.3%. This suggests cost pressures are building in the production pipeline, and costs are being passed on from producers.
• Recent consumer inflation data shows prices rising 0.2% in July with annual inflation at 2.7%. This suggests that, while not definitive yet, some tariff costs may be beginning to flow through to consumer prices as companies adjust to higher import costs.
• The prices of consumer goods have seen their 12-month inflation rate accelerate to 1.2%. For much of the period since the rate hikes of 2022, goods prices had experienced deflation. This is further evidence that some tariffs may be filtering through to prices. Meanwhile, the price increases for services have been decelerating.
• These price increases were largely driven by rising shelter costs (i.e., the cost of housing). For the headline index, this was offset by falling gasoline prices which have fallen 9.5% year-over-year.
• Inflation at these levels is stickier than policymakers would like. Core CPI rose 3.1% year-over-year in July, and one measure of "supercore" inflation - core CPI less shelter - rose 2.6%.

The included chart shows key measures of inflation. CPI measures have been stickier than economists would prefer, and PPI has accelerated.

While short-term policy changes can create market volatility and price pressures, maintaining a long-term investment perspective helps navigate these temporary disruptions and focus on the underlying fundamentals that drive economic growth over time.

With the market constantly changing, we want to be available to answer any questions you may have. Please feel free to reach out if you need further clarification, or we can discuss it during our next meeting.