This summary features revised Q2 GDP data, home sales and personal income and spending data from August, and consumer sentiment data from September. Economic growth was stronger than initially estimated driven by stronger consumer spending, and consumer spending was stronger than expected in August. Housing trends were mixed in August, but demand could improve in future months with lower mortgage rates. The most worrisome of the latest data points is deteriorating consumer sentiment in September.

Consumer Spending Continues to Defy Expectations of Slowing, But September Sentiment Suggests All Is Not Well

REAL GROSS DOMESTIC PRODUCT (GDP): The increase in second-quarter real GDP was revised to 3.8% from the 3.3% second estimate in the final estimate.

  • Personal consumption was revised up to growth of 2.5% from 1.6%.
  • Spending on goods was revised down to a 2.2% increase from a 2.4% increase, while spending on services was revised up to a gain of 2.6% from 1.2%.
  • Gross private investment was unchanged at a decline of 13.8% as inventories were depleted.
  • Real GDP growth year over year was unchanged at 2.1%.
  • The core personal consumer expenditure index was revised up to 2.6% from 2.5% year over year, and the headline price index was revised up to 2.1% from 2.0%.

CONSUMER SPENDING increased 0.6% in August following a 0.5% increase in July and was stronger than expected.

  • Spending on goods increased 0.8% following an increase of 0.6%, while spending on services saw steady growth of 0.5%.
  • Spending on durable goods decelerated to growth of 0.8% from a 1.7% previously, while spending on nondurable goods increased 0.8% following no change in July.
  • Spending on motor vehicles and parts increased 0.4% following a 3.2% increase.

PERSONAL INCOME increased 0.4%, which was also stronger than expected following a 0.4% increase in July.

  • Employee compensation growth decelerated to 0.3% from 0.5% previously.
  • Government transfer payments accelerated to 0.3% from no change as Social Security payments increased 0.3% and unemployment compensation declined 0.2%.
  • Proprietors’ income grew 0.9% following the same increase previously.
  • Personal dividend income growth increased 0.2%, and interest income increased 0.1%.
  • The savings rate declined to 4.6% from 4.8%.

THE PERSONAL CONSUMPTION EXPENDITURE (PCE) INDEX, the key gauge of inflation that the Fed follows, increased 0.3% as expected.

  • Overall price inflation, according to the PCE, increased to 2.7% from 2.6% year over year as expected.
  • The core inflation rate was steady at 2.9% as expected, with an increase of 0.2% for the month.
  • Factoring in inflation, real spending increased 0.4% in August, which was stronger than expected and was steady with an upwardly revised similar reading in July.

EXISTING HOME SALES decreased 0.2% in August, when a 1.5% decrease was expected.

  • The existing home sales SAAR of 4.00 million was up 1.8% from a year ago.
  • Home sales trends varied by regio,n with an increase of 2.1% in the Midwest and 2.2% and 1.4% in the West but declines of 4.0% in the Northeast and 1.1% in the South.
  • Compared to a year ago, sales were down in the Northeast (-2.0%) and the West (-1.4%) but were up in the South (+3.4%) and the Midwest (+3.2%).
  • Inventory decreased 1.3% in August to 1.53 million units, which was up 11.7% year over year.
  • The months’ supply of homes for sale remained steady at 4.6 months, up from 4.2 months a year ago, but still considered tight.
  • The median sales price decreased to $422,600, which was up 2.0% year over year. Prices were up year over year in every region but up the least in the South and the West.

NEW HOME SALES surged 20.5% in August from an upwardly revised pace of 664,000 in July to an annualized pace of 800,000 and were up 15.4% year over year.

  • Sales were up for the month in every region, with the largest gain of 72.2% in the Northeast and the smallest gain of 5.6% in the West.
  • The estimated gains should be taken with a grain of salt, as none of the increases were statistically significant relative to the confidence interval for the survey-based data.
  • Sales were up year over year in every region but the West, where sales were down 5.7%, but none of the year-over-year changes were statistically significant.
  • New-home inventory decreased to 7.4 months (-1.4%), which was the lowest level in more than two years and closer to what is considered normal. New-home supply was up 4.0% year over year.

TOTAL HOME SALES: With existing home sales decreasing slightly and new home sales jumping in August, total home sales increased 2.7% for the month and were up 3.8% year over year.

CONSUMER SENTIMENT deteriorated in September.

  • The sentiment index from the University of Michigan decreased 5.3% in September to 55.1, which was slightly lower than expected and marked a decrease from the earlier reading at the beginning of the month. The index was down 21.4% year over year.
  • The underlying views of current conditions and future expectations both declined, with future expectations declining the most.
  • Expectations for inflation in one year decreased to 4.7% from 4.8%, but expectations for inflation in five years increased to 3.7% from 3.5%.
  • Consumers’ views of buying conditions for vehicles declined slightly to the lowest level in four months as views of prices deteriorated.
  • The daily index of consumer sentiment from Morning Consult has decreased 3.2% this month as of September 26, leaving the index up just 0.9% year over year.
  • According to AAA, the national average price for unleaded gas has decreased to $3.15 per gallon, down 1.3% this month as of Sept. 25 compared to the end of August and down 2% year over year.

BOTTOM LINE: Despite the noise in August housing data, the broader economic picture remains resilient. Revised Q2 GDP shows stronger-than-expected growth, powered by robust consumer spending that continues to defy expectations. August’s personal income and spending data reinforce this strength, with real spending rising and inflation indicators staying steady.

Housing remains mixed: Total home sales rose in August thanks to a surge in new-home sales, but existing home sales stayed soft. Inventory remains tight, and regional trends are uneven. The recent drop in mortgage rates in September could be the catalyst for improved housing demand in the months ahead.

The most concerning signal is deteriorating consumer sentiment in September. While spending remains strong, sentiment is slipping, suggesting consumers are feeling the weight of persistent economic uncertainty.