Consumers still spending, but housing falling. All the more reason to cut rates

After a couple of weak months of retail sales and a soft jobs report for July, how have American consumers been holding up?

Turns out they were glad to go to the stores and buy stuff at a surprisingly high rate.

Consumer spending held up even better than expected in July as inflation pressures showed more signs of easing, the Commerce Department reported Thursday.

Advanced retail sales accelerated 1% on the month, according to numbers that are adjusted for seasonality but not inflation. Economists surveyed by Dow Jones had been looking for a 0.3% increase. June sales were revised to a decline of 0.2% after initially being reported as flat.

Excluding auto-related items, sales increased 0.4%, also better than the 0.1% forecast.

There was also good news on the labor market front: Initial unemployment benefit claims for the week ended Aug. 10 totaled 227,000, a decrease of 7,000 from the previous week and lower than the estimate for 235,000.

Gains in sales were propelled by increases at motor vehicle and parts dealers (3.6%), electronics and appliance stores (1.6%), and food and beverage outlets (0.9%). Miscellaneous retailers saw a plunge of 2.5% while gas stations saw receipts climb just 0.1% and clothing stores were down 0.1%.

With consumers being around 70% of US economic growth, it's a good sign that Americans keep spending at the stores.

But there was one dark cloud on an otherwise bright week of economic news. We found out on Friday that there were a sizable decline in new housing activity for July.

Housing starts fell to a 1.24 million annual pace from 1.33 million in June, the government said Friday. That's how many houses would be built over an entire year if construction were at the same rate each month as in July….

Housing starts fell to the lowest level since May 2020. Outside of the pandemic, new-home construction was at its lowest level since March 2019.

A big drop in single-family construction pulled the overall figure down, even as multi-family starts moved up.

Building permits, a sign of future construction, fell 4% to a 1.4 million rate.

It's a 5th straight month of declining single-family housing starts, and single-family and multi-unit permits have also been down in recent months.

That's noticeable deterioration, and all the more reason to show that the Fed screwed up by not cutting interest rates at its meeting last month. Home-building and home affordability continues to suffer with these excessive rates, and it’s the biggest drag on our economy at this time. In addition, with the lack of new housing being built, we also need lower rates to encourage more existing homes to go on the market (since selling out of a 3-4% mortgage isn't worth it when you have to borrow at 6-7%).

That home-building and affordability drag is being overcome for now by the fact that the overall US economy is still in a good place. Wages are still exceeding a dwindling amount of inflation, unemployment claims are staying low, and consumer spending continuing to grow. But if the housing sector isn’t turned around soon, and activity does stop sliding, that’s the kind of thing that then starts tipping over into job losses and real problems.