Housing construction still weak, but consumer still muddling along

Wanted to get a couple of quick updates with recent economic reports. Let's start with housing construction, which had shown significant declines in the 2nd Quarter of 2025.

While the lousy numbers of the prior two months were revised up a little, and we got a second straight month of increased housing starts, we still are sitting at the lowest non-COVID amount of housing permits in the 2020s, and at or near multi=year lows for both housing units under construction and completions.

On the positive side, we haven't seen a complete collapse of the consumer yet. July's retail sales report indicated that we were still seeing some growth, and that June's strong figures were revised up.

Retail sales rose 0.5% last month after an upwardly revised 0.9% gain in June, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, would increase 0.5% after a previously reported 0.6% rise in June.

Sales increased 3.9% on a year-over-year basis. Motor vehicles led the almost broad rise in sales, with receipts at auto dealerships advancing 1.6% after rising 1.4% in June. A rush to buy battery-powered electric vehicles ahead of the September 30 expiration of federal government tax credits helped to drive automobile sales in July, analysts at J.P. Morgan said.

So again, some of the good numbers are short-term distortions caused by Trump/GOP policy designed to mess up something that was going along just fine before they got there.

And on the price side, despite the relatively tepid numbers in July's Consumer Price Index, a sizable jump of 0.9% in the Producer Price Index showed tariffs were indeed raising costs, and consumers know those higher costs are coming their way.

The University of Michigan's Surveys of Consumers showed consumer sentiment weakened in August, with its measure of buying conditions for long-lasting manufactured goods slumping to a one-year low as concerns over purchasing power mounted.

"Underlying fundamentals are clearly softening," said Lydia Boussour, senior economist at EY-Parthenon. "In the months ahead, the drag on consumer demand is expected to intensify, with demand destruction from higher tariffs likely to become more pronounced as consumers increasingly scale back discretionary purchases to cope with rising costs."

Consumers' 12-month inflation expectations increased to 4.9% this month from 4.5% in July. The increase occurred across all three political affiliations.

But no recession yet. It'll take a serious inflation spike and/or layoffs for that to happen, and we weren't there in July. But you can see where the bad stuff might start picking up in August's data, when we get to that in the next few weeks.