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Daily Economic Update
07.09.2025US: Job market weakens further, making a Fed interest rate cut next week all but certain. The US labor market in August indicated a further stall in job growth as non-farm payrolls rose by just 22K from 79K in July, significantly below the consensus forecast of 75K, with several industries recording a decline in jobs. Moreover, June’s jobs numbers were revised lower to show a decrease of 13K versus a gain of 14K in the previous estimate, a first drop in employment since December 2020. This pushed the average monthly job increase in the last four months to just 27K versus an average of 168K in 2024. However, the response rate for the establishment survey was very weak for August this year, and therefore, these payroll figures could see significant revisions over the coming two months. The unemployment rate ticked up to 4.3% from 4.2% in July, the highest since October 2021, as the participation rate rose to 62.3% from July’s 62.2%, after falling for three straight months. A rise in labor participation, if sustained, implies that amid a current low hiring environment, the unemployment rate could increase further. Wage growth slowed to 3.7% y/y from 3.8% in July but remained in the tight range witnessed since April. A further weakening in job indicators cemented market expectations of a 25 bp interest rate cut at the FOMC meeting next week, with futures markets seeing higher chances of three cumulative rate cuts by year-end. Meanwhile, the ISM services PMI improved to a six-month high of 52 from July’s 50.1 on a solid increase in new orders (to a 10-month high of 56 from 50.3). The survey also highlighted that price pressures remained elevated (at 69.2, the second highest reading since late 2022) amid higher tariffs, with firms continuing to trim employment. The broad picture is a slightly complex one of reasonable robustness in some economic prints, signs of higher prices but weakening employment conditions. We think that political pressure aside, the Fed may still want to wait for more convincing data points (either well-behaved inflation prints and/or a further sharp deterioration in the job market) before cutting interest rates too aggressively. Finally, President Trump signed an executive order to confirm the trade framework agreed earlier with Japan that would see a 15% tariff rate on most Japanese products, including autos.
Eurozone: Retail sales disappoint in July. Retail sales reversed track in July, falling by a below-consensus 0.5% m/m after rebounding in June (+0.6%). The most recent monthly figures reflect a noteworthy drop in food (-1.1% m/m) and auto fuel sales (-1.7%), while non-food products (except automotive fuel) increased by 0.2%, offsetting some of the overall weakness. Among the bloc’s largest economies, retail trade fell by 1.5% in Germany and by 0.4% in Spain. Meanwhile, in France, retail sales were unchanged for a third consecutive month. On an annual basis, retail trade eased to 2.2% y/y in July from June’s 9-month high of 3.5% y/y.
UK: Retail sales growth in July accelerates but previous months’ data revised downward significantly. UK retail sales volumes in July increased 0.6% m/m (1.1% y/y) from 0.3% (0.9% y/y) in June. However, the Office for National Statistics reported some data errors in previous releases and revised down growth in H1 to 1.1% ytd from 1.7% reported earlier, indicating that consumer spending was more subdued than previously thought. We note that the outlook for the UK economy continues to be cautious because despite some early signs of stabilization in activity, slowing wage growth and government fiscal consolidation efforts could dampen households and business’ mood.
Japan: Real wage growth turns positive for the first time in seven months. Nominal wage growth accelerated to 4.1% y/y in July (3.1% in June), its highest level since December 2024. Growth was supported by pay hikes at major Japanese firms of more than 5%, following the 2025 annual spring wage talks. Meanwhile, consumer price inflation used to estimate real wages, which excludes rent costs, decelerated for the sixth consecutive month, easing to 3.6% y/y in July (3.8% in June). As a result, real wage growth turned positive for the first time since December 2024 at 0.5% y/y, up from a decline of -0.8% y/y the previous month. The growth in real wages will boost the case for the Bank of Japan (BoJ) to tighten monetary policy, with Governor Kazuo Ueda projecting further wage increases amid a tightening job market. Worries of a global economic slowdown and its impact on the exporting sector and corporate profits could complicate the BoJ’s timeline, however.
Kuwait: Fitch affirms sovereign rating at AA-, outlook stable. Ratings agency Fitch affirmed Kuwait’s sovereign credit rating at AA- (outlook stable), citing the state’s ‘exceptionally’ strong fiscal and external balance sheets. Indeed, its external reserves are the strongest among all sovereigns assessed by Fitch and are forecast to rise to 607% of GDP this year from an estimated 576% of GDP in 2024. Nevertheless, acting as constraints, the agency noted that governance was ‘weaker than its peers’, the public sector and welfare system very large, and the country still overwhelmingly dependent on oil revenues and the hydrocarbon sector more broadly. While the ratings agency still sees reform progress as a gradual process, it did highlight the recent approval of the debt law and the government’s efforts to consolidate the public finances. Fitch expects the broader economy to return to growth this year (1.7% y/y) after two consecutive years of decline, on a recovery in oil sector output.
Qatar: Employment gains push up non-oil private sector activity in August. Qatar’s private sector PMI edged up to 51.9 in August from 51.4 in July, driven by a record increase in employment. The labor market has remained the primary growth driver this year, with employment gains up at a series high and staffing costs also rising at a near-record pace. Despite wage pressures, firms’ overall input costs fell for the first time since March, which likely contributed to the further decline seen in prices charged for goods & services. Weighing on overall business activity, though, was the fall into contraction territory of the output index after growing in June and July, while the decline in new orders eased slightly. Nevertheless, business confidence improved to the highest in seven months with firms positive about the outlook amid a rising population, a growing real estate sector, and a recovery in construction and tourism.