Sales fell the most in the South, down 4.7% from July, as Hurricane Harvey wreaked havoc near the end of the month. Sales fell 2.7% in the West, which may have been partly due to the massive wildfires, and fell 2.6% in the Northeast. Sales in the Midwest were flat.

​In the second quarter, the national median price was up 1.8% from the prior year. Prices were up 7.6% in the Midwest and 2.4% in the West, but were down 1.6% in the South and 6.6% in the Northeast. The Census Bureau does not report regional median prices by month, only quarterly and annually. In August, the national median price fell to $300,200, a 6.2% decline from the prior month and the biggest since May 2016, following a 1.1% increase in July. This was the sixth straight month where the direction of price changes on a month-ago basis was opposite that of the prior month. Compared to a year ago, the median price was up just 0.4%. After revisions, the 12-month moving average trend of price growth has been fairly steady over the last couple of years, coming in at 3.9% in August, up a bit from 2.9% in January 2016. This contrasts with a noticeable downward trend in this measure before the price revisions in today’s report.  

In August, there was 6.1 months’ worth of supply available, a notable increase from July’s 5.7 months and the most since July 2014. An increase in inventory for sale to the highest since May 2009 and a decline in sales both led to the increase in months’ supply. Since 5-6 months’ supply is generally considered a balanced market, the market appears to be in fairly good balance right now. This has helped to keep prices fairly stable recently, albeit still very high. The weakness in sales came despite a third straight month of sub-4% mortgage rates amid political and geopolitical uncertainty and slow inflation.

With inflation still below the Fed’s target of 2.0%, the Fed held rates steady at last week’s FOMC meeting. However, they did give a start date of October to begin reducing their balance sheet. This may push up mortgage rates, but inflation and politics will also be factors. Earlier today Janet Yellen confirmed my opinion that the June rate hike was a mistake.

By region, sales increased 10.8% from the prior month in the Northeast and 2.4% in the Midwest, but fell 4.8% in the West and 5.7% in the South. Compared to a year ago, sales were up the most in the Northeast at 1.4% and were up 0.8% in both the West and Midwest. Sales were down 0.9% in the South. Although weakness in the South could be partly due to Hurricane Harvey, the South has been on a downward trend for the last few months. Median prices were up the most in the West at 7.7% compared to a year ago, while they were up 5.6% in the Northeast, 5.4% in the South and 5.0% in the Midwest. The national median price was up 5.6%, down from July’s 6.1% rate of growth and the least since December.

​By type, sales were up 1.7% compared to the prior month for condos and co-ops but down 2.1% for single-family homes. On a year-ago basis, sales were up 0.4% for single-family homes but down 1.6% for condos and co-ops. Prices were up 5.6% for single-family homes and 5.4% for condos and co-ops. 

Inventory continues to be a big story right now. In August, inventories fell 2.1%. However, since sales fell a slightly smaller 1.7%, the ratio of inventories to sales, or the months’ supply, held virtually steady at 4.2 for the fourth straight month. However, the 12-month moving average slid to 4.0 months, down significantly from a couple years ago. One big reason that inventories are so low is that some people who would like to upgrade are finding prices too high so they are staying in their current home, preventing others from buying their house and keeping supply limited. What homes do get listed are often scooped up quickly, and sellers are getting multiple offers that in some cases are above the asking price. This suggests we may be close to a cyclical a peak in prices.

​Sales fell in August despite mortgage rates staying below 4.0% for a third straight month. With inflation below the Fed’s target of 2.0%, the Fed held rates steady at last week’s meeting. However, they finally gave the market a start date of October for unwinding their balance sheet. This could send mortgage rates higher, but inflation will also be a big factor. 

The biggest monthly increase in dollar terms was a $900 million, or 2.5%, increase in gasoline sales, largely driven by a surge in gas prices and heavy demand at the end of the month in the wake of Hurricane Harvey. There was not much strength anywhere else as sales at food and drinking places and food and beverage sales came in a distant second and third, rising by $167 million, or 0.3%, and $162 million, or 0.3%, respectively. The miscellaneous category saw a nice 1.4% increase in sales, while furniture sales rose a decent 0.4%. The biggest decline in sales came from motor vehicles and parts, which plunged by $1.6 billion, or 1.6%, which was also the biggest percentage decline. This followed several months of strength after a rough start to the year for the industry. Following a jump in July, non-store sales fell by $573 million, or 1.1%. Clothing also had a weak month, as sales declined by $211 million, or 1.0%.

​Sales were higher on a year-over-year basis, led by a $4.2 billion, or 8.9%, increase in non-store sales. Gasoline sales were up by $2.3 billion, or 6.8%, and building and garden supply sales were up by $2.1 billion, or 7.4%. On the downside, sales at electronics and appliance stores were down by $264 million, or 3.2%, department store sales were down by $147 million, or 1.1%, while sales at sports and hobby stores were down by $130 million, or 1.8%. Although department store sales are still down from a year ago, the decline has slowed noticeably since the end of last year. 

If we take out the impact of gasoline sales, which are not really an indication of stronger or weaker economic growth but rather due to changing gas prices, ex-gas retail sales were up 3.1% from a year ago in August, the least since February 2014. If we also adjust for inflation, we see that real ex-gas retail sales were up 1.2%, the least since February.

​Today’s report is further justification for no rate hike tomorrow. It will be interesting to see what the Fed says about winding down its balance sheet and when they plan to begin. 

Compared to a month ago, prices rose the most for gasoline (+6.3%), fuel oil (+2.9%), motor vehicle insurance (+1.0%), physicians’ services (+0.4%) and owners’ equivalent rent of primary residences (+0.3%). Prices fell the most for airline fares (-1.0%), piped gas service (-0.5%), nonalcoholic beverages and materials   (-0.4%), dairy and related products (-0.4%) and used cars and trucks (-0.2%). Gasoline prices accounted for half of the overall increase in the index, while owners’ equivalent rent and lodging away from home also had big positive impacts. Domestically produced farm food, food at home and women’s apparel had the biggest negative effects on the overall price index.

Compared to a year ago, prices were up the most for gasoline (+10.4%), fuel oil (+9.4%), motor vehicle insurance (+8.1%), tobacco and smoking products (+6.3%) and piped gas service (+5.4%). Prices were down the most for used cars and trucks (-3.8%), airline fares (-3.2%), physicians’ services (-0.8%), new vehicles (-0.7%) and apparel (-0.6%). The biggest positive effects on a year-ago basis came from owners’ equivalent rent, gasoline and motor vehicle insurance, while the biggest negative effects came from wireless phone services, used cars and trucks and recreation.

​Even though employment growth was strong in June, the Federal Reserve held the Fed Funds rate steady at its July meeting as wage growth remained subdued and inflation slowed. Since then job growth has slowed a bit and wage growth has not improved. Even though inflation came in stronger than expected in August, the core rate remains below the Fed’s target of 2.0%, both for the consumer price index and the Fed’s preferred measure, the personal consumption expenditures price index. In addition, the sharp increase in gas prices in August was in part driven by a month-end spike due to Hurricane Harvey’s impact on oil refineries. With gas price increases likely temporary, a nation rebuilding from storms and fires and continued geopolitical tensions, the Fed is expected to hold rates steady tomorrow. 

Professional and business services led the way in August, putting 40K more people to work. Manufacturing had a very good month, creating 36K new positions, the most in four years, due in part to a rise in motor vehicle and parts manufacturing. Construction also had a solid month as 28K workers found new jobs, the most since February. Healthcare services had a very weak month, adding just 17K new jobs, far less than the 44K increase in July and the least in over four years. The weakness was primarily due to a slight decline in home healthcare services following a big spike in July. Leisure and hospitality services only put 4K more people to work, a huge drop from July’s 58K increase. It was the industry’s worst month in over five years and was due to a big slowdown in hiring at food services and drinking places following a huge jump in July. Retail trade had another weak month, creating only 800 new jobs.

On the downside, information services continued to struggle, cutting 8K more jobs, the eleventh straight monthly decline during which 75K jobs have been eliminated. Government also lost 9K jobs, almost all of which came at the state and local levels.  

​The 33K decline in job growth in August versus July was largely due to much less hiring in leisure and hospitality services and healthcare. These slowdowns came after big spikes in certain areas, suggesting the weakness in August was payback for those recent jumps. 

The unemployment rate rose from 4.3% to 4.4% as the household survey showed that the labor force increased by 77K while employment declined by 74K. Thus, not only did new entrants not find jobs, some people previously employed lost their jobs. This is certainly not a good sign for the labor market.  

Average hourly earnings rose just 0.1% and were up 2.5% from a year ago for the fifth straight month. With inflation cooling recently, real wage growth has rebounded slightly but remains fairly weak at just 0.8%.

​Today’s weak jobs report, combined with weak inflation, rising tensions with North Korea and the impacts of natural disasters, suggests the Fed will almost certainly not raise interest rates any time soon.  

By region, sales increased 5.0% from the prior month in the West and 2.2% in the South, but fell 5.3% in the Midwest and plunged 14.5% in the Northeast. Compared to a year ago, sales were up the most in the West at 5.0% and were up 3.6% in the South. Sales were down 1.5% in the Northeast and 1.6% in the Midwest. For the Midwest, it was the fourth straight month without an increase in sales from the prior year. Median prices were up the most in the West at 7.6% compared to a year ago, while they were up 6.7% in the South, 5.9% in the Midwest and 4.1% in the Northeast. The national median price was up 6.2%, down slightly from June’s 6.3% rate of growth.

​By type, sales were down 0.8% compared to the prior month for single-family homes and down 4.8% for condos and co-ops. On a year-ago basis, sales were up 5.3% for condos and co-ops and just 1.7% for single-family homes. Prices were up 6.3% for single-family homes and 5.3% for condos and co-ops. 

Inventory continues to be a big story right now. In July, inventories fell 1.0%. However, since sales fell a slightly larger 1.3%, the ratio of inventories to sales, or the months’ supply, held steady at 4.2 for the third straight month. The 12-month moving average also held steady at 4.1 months, down significantly from a couple years ago. One big reason that inventories are so low is that some people who bought homes at the peak of the bubble in 2006 still have not recuperated all of their losses. On the other hand, many who would like to upgrade are finding prices too high so they are staying in their current home, preventing others from buying their house and keeping supply limited. What homes do get listed are often scooped up quickly, and sellers are getting multiple offers that in some cases are above the asking price. This suggests we may be getting very close to a cyclical a peak in prices.

​Sales fell in July despite mortgage rates staying below 4.0% for a second straight month. With inflation below the Fed’s target of 2.0% and political uncertainty weighing on bond yields, mortgage rates remain very favorable. When the Fed starts to trim its balance sheet, mortgage rates could start to rise. Stay tuned! 

The only region where sales rose was in the Midwest, where sales increased 6.2% from the prior month. Sales fell 4.1% in the South, 21.3% in the West and 23.8% in the Northeast. Compared to a year ago, sales were only higher in the West, up a scant 1.4%, while sales were down 10.4% in the South, 12.7% in the Midwest and 13.5% in the Northeast.

​In the second quarter, the national median price was up 1.8% from the prior year. Prices were up 7.6% in the Midwest and 2.4% in the West, but were down 1.6% in the South and 6.6% in the Northeast. The Census Bureau does not report regional median prices by month, only quarterly and annually. In July, the national median price rose to $313,700, a 0.7% increase from the prior month, following a 3.5% drop in June. Compared to a year ago, the median price was up 6.3%. This was the sixth straight month where the direction of price changes on a year-ago basis was opposite that of the prior month. The 12-month moving average trend of price growth has been slowing over the last couple of years, and in June reached a new cyclical low of 2.4% but bounced back slightly to 3.0% in July. This suggests new home prices may be getting very close to a cyclical peak.  

As with the existing home market, inventory continues to be a big story right now. In July, there was 5.8 months’ worth of supply available, a notable increase from June’s 5.2 months and the most since September 2015. An increase in inventory for sale to the highest since June 2009 and a decline in sales both led to the increase in months’ supply. Since 5-6 months’ supply is generally considered a balanced market, the market appears to be in fairly good balance right now. This has helped to keep prices fairly stable recently. The weakness in sales came despite a second straight month of sub-4% mortgage rates amid political uncertainty and slowing inflation.

​With inflation slowing and still below the Fed’s target of 2.0%, the Fed held rates steady at July’s FOMC meeting. However, the bigger issue is when the Fed will start to reduce its balance sheet, which may begin in September. This might push up mortgage rates, but inflation and politics will also be factors. 

The interest rate spread between the 10-year Treasury yield and the Federal Funds rate led the way in July, contributing 0.13 percentage points to the growth in the index. Although this was the smallest contribution from this component since last August as the spread has narrowed, this component has still contributed the most to the rise in the index over the past six months. The ISM new orders index came in second, contributing 0.10 percentage points as the index remained on the upper end of the recent range in July. Consumer expectations for business conditions contributed 0.09 percentage points, a nice rebound from the weak contribution in June, likely driven by strong job growth. The stock market contributed 0.03 percentage points as the market continued its upward march despite political chaos. Another decline in average weekly jobless claims added 0.02 percentage points. Core capital goods orders and new orders for consumer goods contributed little to the index, while average weekly hours contributed nothing as hours were unchanged.           

​The only negative contribution came from building permits, which took 0.12 percentage points away from growth in the index as permits fell from 1.275 million units at a seasonally adjusted annualized rate in June to 1.223 million units in July. 

Although the interest rate spread is often among the largest contributors, its contribution has been trending slightly lower over the last few months as the Federal Reserve has been gradually raising the Federal Funds rate while the 10-year Treasury yield has come down as investors’ initial optimism about the new administration’s economic policies has been followed by some doubt about the chances for successful implementation.

​The 10-year Treasury yield has fallen further in August amid rapidly mounting political tensions both here and abroad. It is becoming increasingly clear that Trump is going to have a very difficult time getting his much sought-after pro-business agenda implemented, which bodes ill for stocks and the economy. 

The biggest monthly increase in dollar terms was a $1.2 billion, or 1.2%, increase in motor vehicles and parts. Non-store sales followed with a $696 million, or 1.3%, increase. Building and garden supply stores took the third spot with a $359 million, or 1.2%, increase. On a percentage basis, the strongest growth was seen in the miscellaneous category, where sales rose 1.8%. The biggest decline in sales came from gasoline stations, where sales fell by $130 million, or 0.4%, as gasoline prices declined. Sales at electronics and appliance stores fell by $43 million, or 0.5%, which was the biggest percentage decline. The only other decline was a $38 million, or 0.2%, drop in clothing sales.

​Sales were higher on a year-over-year basis, led by a $5.3 billion, or 11.2%, increase in non-store sales. Vehicles and parts sales were close behind, up by $5.2 billion, or 5.5%. Building and garden supply stores sales were up by $2.3 billion, or 7.9%. On the downside, sales at sports and hobby stores were down by $282 million, or 3.8%. Department store sales were down by $238 million, or 1.8%, amid a struggle against online competition, while electronics and appliance store sales were down by $85 million, or 1.0%, from the prior year. 

If we take out the impact of gasoline sales, which are not really an indication of stronger or weaker economic growth but rather due to changing gas prices, ex-gas retail sales were up 4.3% from a year ago in July, the most since January. If we also adjust for inflation, we see that real ex-gas retail sales were up 2.6% in July. Not only was this the best growth since June 2016, but it was strong enough to break out of the two-year-long downward trend, a welcome development for consumer spending.  

​Despite all of the weak May data, the Federal Reserve raised interest rates in June but finally took a breather in July. Today’s retail sales report, along with upward revisions in the last couple months, paints a brighter picture for consumer spending. Even so, inflation remains at bay and wage growth remains tepid. This bodes well for no rate hike in September.

Compared to a month ago, prices rose the most for medical care commodities (+1.0%), meats and poultry (+0.7%), airline fares (+0.7%), fruits and vegetables (+0.5%) and hospital services (+0.5%). In a rare occurrence, owners’ equivalent rent of primary residences did not make the top five. Prices fell the most for piped gas service (-2.3%), fuel oil (-2.0%), used cars and trucks (-0.5%), new vehicles (-0.5%) and cereals and bakery products (-0.4%). Gasoline prices were unchanged on the month. Owners’ equivalent rent, medical care and recreation services had the largest positive effects on the price index, while the biggest negative effects came from other lodging away from home, piped gas service and new vehicles.

​Compared to a year ago, prices were up the most for motor vehicle insurance (+7.6%), piped gas service (+7.5%), tobacco and smoking products (+7.1%), hospital services (+5.7%) and rent of primary residence (+3.8%). Gasoline prices were up 3.0% from a year ago, but that is only because prices tumbled last July. Prices were down the most for used cars and trucks (-4.1%), airline fares (-2.5%), physicians’ services (-0.6%), new vehicles (-0.6%) and cereals and bakery products (-0.5%). The biggest positive effects on a year-ago basis came from owners’ equivalent rent, medical care and motor vehicle insurance, while the biggest negative effects came from wireless phone services, used cars and trucks and household furnishings and supplies.

Even though employment growth was strong in June, the Federal Reserve held the Fed Funds rate steady at its July meeting as wage growth remained subdued and inflation slowed. With inflation still below the Fed’s target of 2.0% for the personal consumption expenditures index, its preferred measure of inflation, it is very likely that the Fed will choose to leave the Fed Funds rate unchanged again in September. Throw in rapidly mounting tensions with North Korea, and the Fed just might remain on the sidelines for the rest of this year.