This summary presents August data on retail sales, new construction, declining jobless claims, and the first rate cut by the Federal Reserve in 2025. Consumer spending during the summer exceeded prior expectations, while the housing market remained weak. Lower rates should provide a boost to business investment and equity performance. Although the Fed does not directly influence mortgage rates, the rates have moved lower, which could impact the housing market in the future.

Retail Sales Saw Continued Robust Growth in August, But New Construction Trends Were Negative

RETAIL SALES: The initial retail sales report for August saw strong growth in sales that was much better than expected, and July saw a higher revision.

  • Monthly retail sales increased 0.6% following an upwardly revised 0.6% increase in July when only a 0.2% gain had been expected. Retail sales were up 5.0% year over year on a nominal basis, which was up from the upwardly revised 4.1% in June.
  • Adjusted for inflation using the CPI, retail sales increased 0.2% month over month in August and were up 1.9% year over year.
  • The auto sector underperformed the rest of the retail market as sales excluding motor vehicles and parts increased 0.7% while sales of motor vehicles and parts increased 0.5%.
  • Category-level performance was mixed but mostly strong, as eight of the 12 major categories saw sales increases for the month.
  • Nonstore retailers had the largest gain of 2.0%, while miscellaneous stores (-1.1%) was the category with the largest decline. General merchandise, furniture and home furnishings, and health and personal care all had minor 0.1% declines.
  • Miscellaneous stores (+10.7%) and nonstore retailers (+10.1%) were the categories up the most year over year, while gas stations (-0.7%) and building material and garden equipment and supplies (-2.3%) were the only categories down.

RESIDENTIAL CONSTRUCTION: Permits and starts declined more than expected in August.

  • The seasonally adjusted annualized rate of starts decreased 8.5% in August, when a 4.4% decrease had been expected, but July starts were revised slightly higher.
  • Permits decreased 3.7% when a 0.6% increase was expected. For the month, single-family permits decreased by 2.2%, while multifamily permits decreased by 6.4%.
  • Permits were down 11.5% year over year in single-family, while multifamily permits were down 10.4%.
  • Starts decreased 11.7% in multifamily and decreased 7.0% in single-family. After the August decrease, total starts were down 6.0% year over year, while single-family starts were down 11.7% year over year, and multifamily starts were up 8.9%.
  • Permits lead starts, so the permitting pace at 1.312 million units was slightly ahead of the 1.307 million starts pace, which indicates that starts should increase slightly in future months.
  • In the underlying data, only multifamily permits are ahead of starts, so we are likely to see more declines in single-family in future months.
  • The multifamily permit pace was 456,000 compared to 417,000 for starts, and single-family had 856,000 permits versus 890,000 starts.

JOBLESS CLAIMS: Seasonally adjusted initial jobless claims fell by 33,000 to 231,000 for the week ending Sept. 14, more than reversing the jump the prior week, driven by a surge in claims from Texas.

  • Initial claims are now 18,900 more than we saw in 2020 before the pandemic began, but 28,000 less than the fall 2024 peak caused by the hurricanes.
  • Non-seasonally adjusted initial claims decreased by 10,400 and were 50,700 lower than they were before the pandemic.
  • Continuing claims, which represent individuals who have previously filed and remain on traditional unemployment compensation, declined by 7,000 to 1.92 million as of Sept. 7. This level of continuing claims was 167,000 higher than it was before the pandemic but 48,000 lower than recent highs.
  • The broadest measure of continuing claims decreased by 90,900 to 1.83 million in the latest data, which lags the traditional number and is not seasonally adjusted.
  • That total measure is down 171,300 over the last 4 weeks and is 268,400 lower than the pre-pandemic level.

FED RATE POLICY: The Federal Reserve cut its rate policy by a quarter point last week at the conclusion of its sixth scheduled Federal Open Market Committee meeting of 2025.

  • This was the first cut this year and was widely expected.
  • This meeting also featured improving forecasts with higher economic growth and lower unemployment, but also higher inflation.
  • The Fed is divided about the future path given risks that are high for labor market weakness as well as inflation from tariffs, with the median expectation being for quarter-point cuts in each of the remaining meetings in 2025.
  • The 10-year U.S. Treasury declined in September, as did mortgage rates, but auto loan rates have increased.
  • Longer-term bond yields are unlikely to decline significantly and carry more risk to the upside due to growing federal deficits, which will require increased Treasury issuance.
  • The outlook is not promising for relief on auto loan rates anytime soon. New-vehicle supply is likely to remain tight, so incentives are not likely to grow to pull new loan rates down.
  • Auto loan performance remains weak as well, so lenders remain risk-averse and are keeping yield spreads wide.

BOTTOM LINE: August delivered a tale of two trends – retail sales surged well above expectations, signaling resilient consumer demand, while residential construction stumbled, with permits and starts pointing to persistent weakness in single-family housing. Hiring has slowed, leaving more job losers on unemployment longer, though claims data suggest jobless stress isn’t worsening. Meanwhile, relief for auto loan rates remains unlikely, as limited new-vehicle supply and stagnant incentives keep rates elevated, and lenders maintain wide yield spreads amid weak loan performance.