Q3 2025 U.S. economy shows a sharp disconnect: consumer-driven GDP is tracking a robust ~3.9%, while the labor market weakens rapidly with rising layoffs and slowing hiring, leaving the Fed cautious and commercial real estate markets facing heightened uncertainty until “something’s got to give.”
As we close out the third quarter of 2025, one phrase from the Federal Reserve keeps ringing in our ears:
“You can’t have negative job growth and 4% GDP growth. Something’s got to give.”– Fed Governor Christopher Waller
That single sentence perfectly captures the strange split-screen economy we’re living through right now.
The Good News: The Economy Refuses to Slow Down (Yet)
- The Atlanta Fed’s real-time GDPNow model is currently tracking +3.9% annualized growth for Q3 — that would be one of the strongest quarters in years.
- Consumers are still spending freely: August retail sales beat forecasts for the third month in a row, with big gains in travel, hotels, and restaurants.
- Q2 GDP was just revised higher to +3.8%, the fastest pace in nearly two years.
If you only looked at spending and output, you’d think we’re in the middle of a boom.
The Worrying News: The Job Market Is Flashing Red
- Only ~22,000 jobs were added in August (the last official report before the government shutdown).
- Private payrolls actually shrank by 32,000 in September (ADP data).
- Announced layoffs in 2025 are running at the highest level since the 2020 lockdowns — over 120,000 cuts from companies including Amazon, UPS, Intel, Microsoft, Meta, Google, and many others. A recurring theme? AI-driven efficiencies.
- Unemployment is holding at 4.3% only because far fewer jobs are needed each month to keep it steady (Deutsche Bank estimates ~50k vs. 130k a year ago) thanks to retiring boomers, lower immigration, and rising deportations.
The Fed Is Stuck in the Middle
In late October the Fed cut rates by 25 bps to 3.75–4.00%, but Chair Powell made it clear: another cut in December is not a done deal.
Two Fed governors actually dissented in opposite directions — one wanted a 50 bps cut, the other wanted zero. That’s stagflation-level disagreement.
Powell is now openly talking about AI layoffs: “You see a significant number of companies… talking about AI and what it can do. We’re watching that very, very carefully.”
Around the World: Uncertainty Is the Only Certainty
- IMF global growth forecast: slowing to 3.2% in 2025 and 3.1% in 2026.
- World trade growth is expected to drop sharply as lingering tariffs, immigration restrictions, and fiscal stimulus create cross-currents.
- A small bright spot: China and the U.S. hit pause on the rare-earths fight after Xi announced a one-year delay on tighter export controls.
What This Means for Commercial Real Estate
Occupiers and investors hate uncertainty — and right now we have plenty:
- Tariffs still rolling out
- Government shutdown dragging on
- AI reshaping headcount faster than most expected
- Fed policy on a meeting-by-meeting basis
Until either (a) the labor market stabilizes or (b) GDP finally slows to meet it, many tenants will stay cautious on expansion plans and investors will demand extra risk premium.
We’re not calling for a recession tomorrow, but the gap between a roaring consumer and a cooling job market can’t widen forever.
Something’s got to give.We’ll keep watching the data (official and private) and bring you updates as soon as the government reopens and the picture clears.
In the meantime, stay nimble.
~ Lee & Associates Research Team
LEE-ASSOCIATES.COM/RESEARCH
