The Converging Narrative

The Fair Observer

Where Signal Becomes Strategy

September 7, 2025

The Converging Narrative - Weaving Together Last Week’s Data

Beige Book - Regional Nuance, National Pattern
The September Beige Book dropped last Monday (9/2) with a decidedly mixed narrative. With data through August 25^th, it describes a U.S. economy that is slowing and uneven across districts. Four districts reported expansion, and four reported contractions with the remaining four reporting no change. Consumer spending and services remain patchy, manufacturing and some service industries show softening, and wage pressures are easing in places.

As a monthly gauge of current economic activity is interesting to construct a binary chart with a weighted table of economic activity at the Fed District level and then look at the overall Weighted Economic Activity Score.

 This contrasts with the January 2025 Beige Book when eleven of twelve Fed districts noted expansion with only the Philadelphia Fed, which represents 5% of GDP indicating flat activity. The score has declined from +0.95 in January to -0.10 as of the end of September. This change suggests an overall slowing of the of the US economy since January, but no real contraction as of yet – flat and uneven is what the data suggests.

Regional Nuance, National Pattern

The Beige Book’s national summary emphasizes uneven growth: several Districts report softer consumer spending and cooling labor-market anecdotes, while some pockets (energy, certain services) show strength. The Fed’s qualitative regional reporting highlights that pricing pressures are less broad-based than earlier in the cycle and that contacts increasingly cite weaker demand and hiring caution. This establishes the macro backdrop: not an abrupt recession signal, but a clear step down in momentum that increases the value proposition for productivity-enhancing investments.

The jobs report: The look of a cooling labor market

The August jobs print from Friday (9/5) seemed to confirm the slower Beige Book data. It showed sluggish payroll growth (only about +22,000 net new jobs with +75,000 forecast). The three-month average payroll growth now stands at 29k. Government employment declined 16k, while healthcare sector employment rose by 47k. The unemployment rate rose 8bp to 4.32%, reflecting a 288k increase in employment and a 436k increase in the size of the labor force. The rise in the unemployment rate to 4.3% is a deceleration from the prior expansion pace.

Wage inflation remains subdued with average hourly earnings increased 0.27% month over month in August, in line with expectations. The year-over-year rate declined by 0.19pp to 3.69%. Wages for production and non-supervisory workers increased by 0.38% month over month, or +3.93% from a year ago. The utilities (+1.2%), construction (+0.6%), and transportation and warehousing (+0.6%) sectors saw the largest increases in average hourly earnings, while the retail trade (-0.2%), education and health services (+0.2%), and information (+0.2%) sectors saw the softest pace of wage growth.

That slower hiring gives firms more room to automate without immediate risk of losing sales from under-staffing, and it makes the near-term ROI case for technologies that lower recurring labor cost more attractive politically and financially. At the same time, layoffs concentrated in tech and other sectors are freeing up skilled labor that could be redeployed into AI projects—or removed permanently from the cost base.

Update on Consumer and Retail

Next week (9/12) we will get the University of Michigan Consumer Sentiment Report. It will be interesting to compare this with the commentary from retailers as provided at a retail conference which I attended last week. The brief summary is as follows:

Retailers pointed to a resilient consumer, particularly on the higher end, despite the macro upheaval so far this year. Overall, the tone was constructive and broad-based among the companies in attendance, with consumers’ favorable response to newness and innovation which is what we heard in Q2 conference calls and what many see as a continuation of 2Q trends into 3QTD. Though macro uncertainty was certainly acknowledged, the bulk of any potential impacts from tariffs appear to be largely deferred to the back half of the year and into 2026, with mitigation strategies at least partially in place already and no company expecting to broadly raise their prices.

Consumers are increasingly responding to the newness theme and are willing to pay full price for must-have items at a time when basics or older collections are down trending. Demand for new offerings has contributed in part to what we heard described as a surprisingly resilient consumer demand backdrop and is expected to enable price adjustments if needed.

Managing inventory was also a theme.  Inventory management differs by company, but several companies have used shipment timing to their advantage as a buffer against tariffs. Front-loading receipts earlier than usual has helped some companies take advantage of lower costs with the added benefit of beefing up in-stock levels and helping to mitigate price hikes.

Finally, companies are taking proactive measures to woo consumers, recognizing that improved value propositions drive purchase intent and willingness. Avenues of engagement being pursued by companies include a higher priority on convenience, growth and improvement of eCommerce businesses, and expedited delivery times. Marketing also remains top of mind, with investments in digital advertising and brand marketing with a focus on driving new customer engagement and added support on existing customer retention.

Bottom Line

As the week ended, we learned a few things but perhaps nothing that helps plot a path forward. Is the labor market soft?  Judging from a large set of data this week, the objective conclusion is yes.  Is the US consumer rolling over?  The answer to that is not necessarily. 

The narrative as outlined in our past reports seems to be converging: an economy that is slowing but not collapsing, firms under tariff and currency pressures but earnings are stable, a Fed trapped between growth support and inflation vigilance, a dollar that adds complexity to the equation, investors that may be overly exuberant but not irrational.  The background notes can be found on the Fair Observer Website: https://the-fair-observer.ghost.io

A Fair Observer might conclude that the current data lacks the substance required to make a meaningful call on the prospective outlook for the market and the economy, but most would agree that the data suggests that the economy is slowing and overall market valuations appear high based on historical norms. Some more data will be available next week including Small Business Optimism from the NFIB, the PPI and CPI for August, and The University of Michigan releases its Consumer Sentiment survey for September.

Rick Imperiale

Writing as The Fair Observer