August personal income and spending: positive, but with several important yellow flags and revisions

 

 - by New Deal democrat

Personal income and consumption is one of the two big monthly reports on the state of the average American, in addition to the jobs report. In the past several months, I have looked for a rebound from April and May’s “Liberation Day” aftermath of a cutback in spending. In July we did get a rebound, and this morning indicated that it has continued. 

Nominally income rose 0.4% and spending 0.6%. Since the PCE inflation gauge rose 0.3%, real income increased 0.1% and real spending rose 0.3%. As a result, real spending is at new record high, while real income is only below its peak in April:

[Note: with the exception of the personal saving rate, and one YoY graph, all of the data in the below graphs is normed to 100 as of just before the pandemic.]

Since real spending on services (blue, right scale) rarely turns down, even in recessions, the focus is on goods (red, left scale). In August they rose a strong 0.7%, also to a new record high:

Additionally, there is authority for the fact that spending on durable goods usually turns down before spending on non-durable goods. In July, this rose 0.9%, but the absolute level remained below that of March and last December:

While this is positive, the three month moving average (which unfortunately I can’t show with FRED tools) has been almost completely stagnant since April, so we may still be topping here.

Incidentally, while I was traveling yesterday, manufacturing new orders and core capital goods orders were both reported, and these were also very positive, with core capital goods orders hitting a new near 3 year high:

This is a major reason why no recession appears imminent, although I would very much like to see what this statistic looks like without the potentially “bubble”-like capital goods spending on AI data centers.

Next, here is the personal savings rate. I follow this because just before and going into recessions it tends to turn up as consumers get more cautious. This month the Census Bureau made major revisions going back three years. As a result, what last month looked like a “typical reading of 4.4%, along with many previous months, was revised substantially higher. Thus the 4.6% rewind for August was not a significant increase, but rather a significant *decrease* from readings in the past year:

A decline in savings is typically a bullish reading for the present, indicating consumer confidence, but when near new lows is also a sign that consumers may be stretching themselves too thin. Since the revisions may be due to the income side of the equation, or the spending side, or both, I will have to take a deeper look at each before commenting in more detail.

Finally, let’s take a look at two coincident indicators from this report which the NBER pays close attention to in dating recessions. First, here is real income less government transfers:

This was unchanged from July, and further is only 0.2% above its March and June levels, as well as below April’s (blue, right scale). On a YoY basis (red, left scale) the decelerating trend dating back almost three years has continued. Should this trend persist several more months, that would be recessionary.

Second, here is real manufacturing and trade industries sales, which is delayed one month and so if for July. This rose 0.6% for the month to a new all time high:

In summary, this was mainly a positive report, but with several yellow flags. Real personal income and spending both rose, one to a new record. Real sales (delayed one month) also made a new high. This confirms the recent rebound shown in capital goods orders, as well as the Regional Fed new orders reports. This is all good.

But, there are several cautionary elements. In addition to the substantial backward revisions, the three month average on durable goods spending may be on the cusp of rolling over, and as mentioned just above, real income less government transfers has essentially flatlined since March.

A tariff-triggered recession would likely be led by a decline in purchases of consumer durable goods, which will be updated in the next two weeks. Here’s what it looks like currently:

In addition a to the ISM reports and jobs report which will be released next week, this is the next big item I will be looking for.

Initial jobless claims: on the road again . . .

 

 - by New Deal democrat

I’m on the road today, and won’t have time to update anything until tonight.

So here is what to look for in initial and continuing jobless claims.

Remember that the most important figure for forecasting purposes is the YoY% change. One year ago, initial claims came in at 221,000, the four week average at 225,250, and continuing claims at 1.831 million.

A positive result would be numbers lower than those. A neutral result is any number in the weekly and four week average of initial claims lower than 10% higher YoY. For initial claims, depending on revisions to last week’s number of 221,000, 10% plus higher would be 244,000. More importantly, YoY 10% plus higher for the four week average of initial claims would be 248,000, again depending on revisions to last week’s numbers.

Continuing claims + initial claims are good for forecasting the near term trend in the unemployment rate, so any number higher than 1.831 in continuing claims plus 221,000 in initial claims, or 2.052 million total) suggests a higher trend in the unemployment rate vs. one year ago. Last week that combined figure was 2.151 million. 

New home sales: despite the noisy sharp increase in August, the last pre-recession metrics are firmly negative

 

 - by New Deal democrat

Have I mentioned before that new home sales, while perhaps the most leading of all the housing data, suffer from being very noisy and heavily revised? Yes, I think I have, just about every month. And this month’s report is a good example of why.

Let me start with prices this month. Last month it was reported that the median price for new houses sold was $403,800. This month that number was revised down -2.2% to $395,100, and this month itself jumped $18,400 from there to $413,500, a 4.7% increase! This number is not seasonally adjusted, so the best way to look at it is YoY (red in the graph below, left scale), which was higher by 1.9% this month:

The three month average takes out most of the volatility, and so measured prices are down -2.8% YoY, and the declining trend in the absolute number (blue) is intact as well.

But the volatility in the price metric is chicken feed compared with sales (blue in the graph below), which jumped just over 20% (!) from an upwardly revised 664,000 last month to 800,000 seasonally adjusted and annualized this month, a 3+ year high:

I’ll come back to houses for sale (red) in a moment. But while mortgage rates did decline to 10 month lows in August (and more since):

that hardly suggests a complete turnaround in the market. For example, mortgage rates were lower last October, and there was no comparable jump in sales. So, to return to the theme of “noisy and heavily revised,” let’s see what next month’s revisions are before we make a champagne toast, because it is perfectly likely that this is an outlier.

Now let’s return to the number of houses for sale (red in the graph above), which declined another -7,000 from a downwardly revised July to 490,000 annualized, a declined of -2.8% from peak. This is nearly certain confirmation that this metric, which along with employees in residential construction is one of the last to turn in the cycle, has decisively turned down.

Here is the long term historical YoY look at new houses sold (blue) and new houses for sale (red):

It is easy to see that the former (blue) always turns first. Further, it almost always has been negative for a year or more before a recession occurs. The latter (red) - the number of houses for sale - typically turns negative YoY close in time to when a recession actually begins.

Now here is the post-pandemic look:

This month for the first time in a year, the number of houses sold zoomed higher to 15.4% YoY, while the number of houses for sale declerated to a paltry 4.0% higher YoY. It could easily turn negative by about the end of this year.

In sum: housing is recessionary, and the last shoes to drop, have dropped.

The State of the Consumer: the nowcast recession forecasting tool

 

 - by New Deal democrat

In addition to my system of long and short leading indicators, and the weekly high frequency data, the third system I use to mark to market my views of the economy is what i call “the consumer nowcast.”

Consumers are 70% of the economy. Their sources of new spending include wages and salaries, refinancing existing debt at lower rates, and cashing in or borrowing against appreciating assents. When the spigots for all of these are turned off, and consumers start getting more cautious, a recession ensues.

Yesterday and today, for the first time in many months, I updated that tool, and it is posted over at Seeking Alpha. While it isn’t negative, the situation of consumers is more precarious than it might appear on the surface.

As usual, clicking over and reading will bring me a penny or two in lunch money, as well as hopefully being educational for you.

Weekly Indicators for September 15 - 19 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

Along with the continuing resilience of consumer spending, which I wrote about yesterday, the other surprise in the data has been the strong rebound in manufacturing indexes in the past 45 days, as evidenced by several of the regional Fed situation reports released in the past week. All of this is part of a complex reaction to the chaos of imposition/postponements etc. of tariffs. Needless to say, it remains to be seen just how durable this is.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and bring me a penny or two for lunch money.

Addendum: speaking of yesterday’s post, there is one graph that didn’t make it in there, but is an important part of of the overall picture; namely, that the share of total spending by the top 10% of consumers is at an all time record high:

This doesn’t mean that the increasing trend can’t continue. In fact, with fits and starts it’s been the case since at least the start of the Millennium. But it does point to the narrowness of the support for the consumption part of the economy.

 

The AI stock price bubble and consumer spending Ponzi loop?

 

 - by New Deal democrat

One of this things that has puzzled me for the last few months is why consumer spending has remained so strong in the face of so many headwinds in the economy, some from horrible policy coming out of Washington, some embedded in the long leading and short leading sectors. 

There is no economic news today, so let me deviate from my normal routine to explain my best hypotheses: namely, that the stock market and consumer spending are presently in a self-reinforcing positive feedback loop. By this I mean that the wealth effect from increasing stock prices is causing the uppermost income brackets to spend more, which only reinforces the earnings of companies which cater to them, which gives rise to further stock appreciation and so on.

To start, here is a graph of real retail sales (orange), real personal spending (red), and the S&P 500 (blue, right scale) since mid year 2024:

It’s not difficult to see that the patterns are similar. The tariff front-running coincided with new highs in the market, followed by the post- “Liberation Day” swoon, followed by renewed optimism and purchases. This despite the fact that the housing market, some measures of manufacturing, and transportation are recessionary, new vehicle sales are roughly flat, and production has either turned flat or at best slightly increased.

Let me next re-up some graphs that have been posted in the last few days by CNBC’s Carl Quintanilla.

First, after tax wages and salaries have increased much more than those for lower income households:

Unsurprisingly, lower income households have become stretched. While they haven’t cut back on their spending, it hasn’t increased either:

But higher income households are doing just fine.

And driven by those upper income households, US stock allocation is at an all-time high, even surpassing 1999 and 2005:

Currently stock prices are up 16% YoY:

An upper income household that had $500,000 in stocks one year ago now has $80,000 more in paper wealth; if a wealthier household had $1,000,000 in stocks, it now has $160,000 more wealth on paper, and so on. 

And some of it is being spent. That’s the wealth effect.

Now, the obvious problem with all this is, what happens if and when the stock market reverses. And there is every reason to believe it will reverse. That’s because almost all of the earnings gains in stocks have been confined to a very narrow group that dominate the social media/AI space. To wit, *ALL* of the recent earnings upgrades have come from just 7 of the 500 stocks in the S&P 500:

And the advance-decline line (the number you get when you subtract the number of stocks with daily declines from those with daily increases) has remained almost flat since the beginning of July (up about 0.5%) vs. the S&P 500, up about 3%:

This by no means tells us anything about *when* there might be a reversal. But the above graphs are warning signs that stocks are very vulnerable to such a reversal. It also doesn’t tell us what the source of the reversal might be. For example, in 2000 the reversal in the internet stocks bubble began when Barron’s magazine published a front page story about the “burn rate” for various of those stocks, showing that some of them (I think pets.com was the leading example) were within 7 weeks of running out of money.

But I think the above is the best explanation about why consumer spending is holding up so well. Because people react much more strongly to losing money than gaining it, it also strongly suggests that if there is a stock market reversal, in this overall economic environment consumer spending is going to decline in pretty dramatic fashion.

Jobless claims continue higher YoY trend

 

 - by New Deal democrat

We are in the part of the year when, post-Covid, likely residual seasonality has resulted in a declining trend in new jobless claims. 

Not this year.

On a week over week basis, initial jobless claims did decline -33,000 from last week’s outlier 264,000 to 231,000, and the four week averaged declined -750 to 241,000. With the typical one week delay, continuing claims declined -7,000 to 1.920 million:

On the YoY basis more important for forecasting purposes, however, initial claims were higher by 4.1%, the four week average by 5.3%, and continuing claims by 5.1%:

These are neutral readings, consistent with a slowly expanding economy. Nonetheless, I find this noteworthy because, along with sharply rising stock market prices, during the summer they were one of the few strongly positive short leading indicators. This has now disappeared.

Finally, let me update the relationship with the unemployment rate. A reminder that initial claims have a long history of leading the unemployment rate, and initial + continuing claims are even more accurate although they only lead slightly.

Here’s the current situation expressed in YoY% changes:

After a brief detour in July and most of August, with both initial and continuing claims having resumed their trend of being higher YoY, this suggests that the unemployment rate in the next several months is likely to be 4.3% or 4.4%, i.e., 1.05x the 4.1% and 4.2% readings of one year ago.

August housing construction: even more recessionary than before

 

 - by New Deal democrat

A puzzling relationship this year has been that the housing data has been classically recessionary for a number of months, and yet the economy has not rolled over. And this morning’s dismal report on housing construction was even more recessionary. 

Let’s start with the most dismal number of all: permits (gold in the graph below) declined -50,000 to 1.312 million annualized. Excluding the immediate COVID lockdown months of April through June 2020, this was the lowest number since June 2019. The more noisy starts (blue) also declined by -122,000 to 1.307 million annualized. And the metric that is the least noisy of all and conveys the most signal, single family permits (red), declined -19,000 to a 3+ year low of 856,000 annualized:

From the post-pandemic peaks, starts are down 28.2% from their peak, permits 31.7%, and single family permits 31.1%. Although I won’t bother with the graph this month, all of those have been typical readings for the onset of most of the recessions of the past 50+ years, although in two cases - 1991 and the Great Recession - they were down by over 50%. 

On the other hand, on a YOY% basis, starts are down 6.0%, permits are down -11.1% and single family permits are down 11.5%. Typically all three have been down 20% or more at the onset of recessions in the past, although in the 1991 and 2001 recessions, they were only down about -10%:

Note that there have been a number of times, for example 1966, 1987, and 1995, where construction has been down -10% or more YoY without a recession occurring.

Let’s turn next to the number of housing units under construction. As I have written many times in the past several years, it is the best “real” measure of the economic impact of housing (blue in the graphs below). In August they declined -20,000 to a new four year low of 1.317 million annualized. They are also down 23.2% from their peak:

The above graph shows how they have followed single family permits (red), as expected. More often than not in the past by the time a decline in units under construction had declined by this much, a recession had already begun. The only two exceptions were the late 1980s, where the pre-recession decline was -28.2%, and 2007, where the pre-recession decline was -25.6%. 

Now let’s update housing units under construction with the typical final shoes to drop before recessions, houses for sale (gold) and residential construction employment (red), in comparison with units under construction, all normed to 100 as of their respective post-pandemic peaks. As I noted in the past month, after revisions both the number of employees in residential construction and new one family homes for sale peaked in March and have declined almost uniformly since:

Now here is the same data presented in YoY% change format:

Note that with the exception of 1974 and the COVID recession, houses for sale and (once available) employment in residential construction had turned down YoY before the recessions had begun. By contrast, at present these metrics are higher by 8.1% and 1.5% respectively. But at their present rates of decline, both could be negative YoY by January.

Finally, as I discussed last month, one reason why the steep decline in housing has not caused a recession yet is that other durable goods purchases, and in particular motor vehicle purchases, have not followed suit. Since then we did get an update on both passenger vehicle (gold in the graphs below) and heavy truck sales (red). Here’s the historical pre-pandemic record, averaged quarterly to cut down on noise:

Note that both types of vehicle sales were lower YoY, with truck sales typically down over 10% YoY.

Here is the monthly post-pandemic view:

While truck sales are down -15.8% YoY, passenger vehicle sales are higher by 6.2%. But as the graph below shows, in their present range passenger vehicle sales (gold) could easily turn negative YoY as early as next month:

Meanwhile, even with yesterday’s increase, nominal retail sales of motor vehicles remain in their range since last November.

To sum up, today’s housing construction report for August was very much recessionary, although in some YoY comparisons, I would expect further damage before the actual onset of one. But that could easily occur within the next four to six months. The next big datapoint to watch for will be the update on persona spending on durable and consumer goods.

August industrial production: overall neutral trend continues

 

 - by New Deal democrat

So much is imported that industrial production is much less central to the US economic picture than it was before the “China shock,” but it remains an important if diminished economic indicator. It has been trending generally sideways this year, and that trend continued in August.

Headline industrial production (blue in the graph below) rose 0.1%% in August, but after revisions to prior months, the net was a decline of -0.1% compared with the initial reading last month for July. Manufacturing production (red) increased 0.3%, but after revisions was up 0.2% compared with the initial reading for July:

Total production has not exceeded its post-pandemic high in June, but with its increase this month manufacturing production is now the highest since early 2019.

Updating my graph from yesterday, mixing production (gold, left scale) increased 1.1% for the month, but remains below its June peak, while utility production (yellow, narrow, right scale) declined -0.8%:

The overall trend in the past six months remains flat to slightly increasing, after strong increases in 2024 into the beginning of this year.

Nevertheless, my conclusion this month remains the similar as it was last month, when I wrote: “Along with retail sales, this is the second coincident positive for the economy this morning.”  Because after revisions total industrial production declined -0.1% this month vs. July, they are neutral vs. positive, but the net of both is that, unless and until consumers pull back, there is no recession.

Consumers say “hold my beer” to DOOOMing about sales

 

 - by New Deal democrat

Retail sales is the first of two very important indicators we got this morning. Per yesterday, with employment growth “dead in the water” since April, consumer spending - which leads future employment - is the single most crucial element of a turning point. 

 It really is incredible how it takes a major shock for American consumers to cut back on spending. Because in August nominally retail sales rose 0.6%, confirming the very positive weekly data that has recently shown up in Redbook. Additionally, July was revised 0.1% higher, from 0.5% to 0.6%. After taking into account consumer inflation in August, which rose 0.4%, real retail sales rose 0.2% for the month, after a 0.4% increase in July.

This means that real retail sales are now at their highest since January 2023, as shown in the graph below (blue):

The above graph also shows real personal spending on goods (gold, right scale), which is a broader measure and tends to trend similarly to retail spending, but won’t be reported until the end of this month.

Further, with several exceptions, most notably in 2022-23, in the past 75 years whenever real retail sales turned negative YoY, a recession was about to begin or had just begun. If it was positive and not sharply decelerating, a recession was unlikely in the immediate future. At present real retail sales are higher YoY by 2.1%, so there is no sign of any imminent downturn in the economy:

Finally, because consumption leads employment, here is the updated graph of real retail sales YoY, together with real personal consumption of goods compared with nonfarm payrolls (red):

Based on historical experience, after the last two good months, real retail sales now suggest that YoY jobs growth will not roll over, but remain in a similar weakly positive range for the next several months.

The big question continues to be whether the continuing chaos of the imposition of tariffs at the highest rate since Smoot Hawley in 1931 creates enough of a shock to derail consumers. So far, (at least perhaps at the top end)  it most emphatically has not.

Employment growth is dead in the water; tomorrow we will find out about production and sales

 

 - by New Deal democrat

With no news today, let’s take a look at why two releases tomorrow are especially important.

Let me begin with employment, which is “dead in the water.”  I’ve written before about how manufacturing and construction employment, and now the entire leading sector of goods-producing employment, is down. But today let me point out how narrow the poor situation in services as well. [NOTE: all FRED graphs in today’s post are normed to 100 as of April of this year].

Below is the graph of total employment (blue), total employment excluding health care (red), and services sector employment excluding health care (gold):

Not only is total employment down by more than -100,000 since April excluding healthcare, but even in the services sector (which is everything except goods production), employment in every other job except health care is up by a grand total of 2,000. Total employment in *all* sectors is up only 107,000 - and it’s all healthcare.

Domestic goods production looks shaky as well. Below is total industrial production (blue), manufacturing production (red), mining (gold), and utilities (right scale, narrow, orange):

Since March nearly all forms of production are either virtually flat or down. Only utilities (probably due in great part to AI data mining operations) are significantly higher. Tomorrow we will find out if this continues or not.

If employment is flat, and if production is also close to flat, what has really been keeping the economy growing has been consumer spending. 

One measure I keep track of weekly is Redbook’s consumer spending report, which is nominal and is only reported YoY:

In the past few weeks there have been strong grains of 6.5% YoY or more.

But more importantly, below are real personal spending on services (blue) which almost always grow even during many recessions, real personal spending on goods (gold) which tend to turn down shortly before recessions, and real retail sales (red) which also turn down prior to recessions, and while similar to goods spending are more sensitive to the downside:

Real retail sales are down from their tariff front-running March peak. Tomorrow they will be reported for August. Keeping in mind that consumer inflation was 0.4% last month, unless there has been strong nominal growth, real sales are likely to be negative.

Weekly Indicators for September 8 - 12 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

While job growth has almost completely stalled, and inflation shows signs of picking up, both consumer spending and the stock market continue to plow forward at full speed. It’s an odd situation that may be powered almost exclusively by people at the top end of the income distribution.

In any event, clicking over and reading will bring you up to the virtual moment as to the economic data, and reward me with a penny or two for collecting and organizing it for you.

August real average wages and nonsupervisory payrolls: some signs of flagging but no recession signal yet

 

 - by New Deal democrat

Now that we have the consumer inflation number for August, let’s take a look at real wages and income for ordinary workers.

In the jobs report last Friday, we learned that both average hourly earnings and aggregate payrolls for nonsupervisory workers increased 0.4% in August. Yesterday we learned that consumer inflation also rose 0.4%, so unsurprisingly growth in both real average wages and aggregate payrolls rounded to zero.

First, here is the historical pre-pandemic graph of real average hourly wages, both YoY (red, left scale) and in absolute terms (blue, right scale). As you can see, a decline in YoY real wages has been a decent - though far from perfect - antecedent to recessions:

The metric is badly complicated by gyrations in the work force itself. In particular, from the early 1970s through the mid-1990s, with the entry of the huge Baby Boom generation, as well as the majority of women, into the workforce, real wages underwent a generation of depression. Once entry of the last Boomer and woman was digested, real wages started rising again. Even during that period, when wages declined more than trend, it was a warning signal.

Now, here is the post-pandemic record:

Somewhat with fits and starts, real average hourly wages have been rising since June 2022, the inflection point when gas prices fell from $5 to $3/gallon, and the supply chain un-kinked. 

The increase in real average wages stands at +1% YoY, with no significant sign of decoration at this point. 

The much more reliable indicator is that of real aggregate nonsupervisory payrolls. This tells us how much the vast majority of consumers have to spend. When it rolls over, consumers pull back, and a recession almost always begins.

Here is the historical, pre-pandemic record:

This indicator is almost flawless. If real aggregate payrolls are rising (blue line) the economy is not in recession. With one exception (2002-03), shortly after it peaks, a recession has always begun, typically within two months of when the YoY% change crosses the zero line (red).

Post-pandemic, this indicator has held up as well, with several periods of weakness (late 2022, the beginning of 2024) but never crossing the zero line:

Currently YoY growth is at 2%.

Finally, as the below graph, normed to 100 as of this March shows, we appear to have entered our third period of weakness in real aggregate payrolls (thick, red line):

These have risen only 0.3% in the five subsequent months, for an annual rate of 0.7%. Meanwhile real average hourly wages (thin, orange line) have increased 0.4%.

It would be wrong to project either of these forward, since needless to say, they don’t forecast their own future trajectory. What we can say is that, if weak job growth translates to weaker nominal wage growth, and if tariffs and the weaker US$ result in higher inflation, real aggregate payrolls could cross the zero threshold, signaling recession, by early next year.

As consumer inflation shows more signs of re-acceleration, the Fed is being forced to pick its poison

 - by New Deal democrat

The Fed is really facing a no-win situation. Between the recent employment reports, the QCEW, and even this morning’s jobless claims report, the jobs market has clearly been weakening, and may be on the very cusp of contraction, implicating the Fed’s dual mandate to strive for full employment. But this morning’s CPI report shows that reviewed inflation is beginning to percolate through the economy as well. About the only silver lining is that shelter inflation continues to abate, and is almost at its pre-Covid range.

For the record, let’s start with the month over month numbers for headline inflation (blue), core inflation (red), and inflation ex-shelter (gold) for the past two years:

Note that I am no longer including the big inflationary spike of 2021-22. Note that the last three months of both headline and core inflation show no deceleration at all, and are actually closer to their highest monthly readings of the past 24 months. In other words, the deceleration in consumer inflation has stopped.

Here is the YoY% look at the same data:

This now clearly shows an uptrend in non-shelter inflation and a smaller but notable increase in headline inflation, with no deceleration in the past 12 months flat YoY core inflation.

Now let’s look at the silver lining: shelter, as usual comparing the YoY% changes in the repeat home sales indexes, which lead by about 12-18 months (/2.5 for scale), to CPI for shelter (red). YoY home price increases are near or at multi-year lows, and shelter inflation has followed. While shelter CPI increased 0.4% in August, on a YoY basis it is up 3.6%, its lowest level since October of 2021. The below graph includes several years before Covid to show that this is actually at the very top end of its 3.2%-3.6% range during the latter part of the last expansion:

On a monthly basis, actual rent increased 0.3%, while fictitious owners’ rent increased 0.4%. On an YoY they advanced 3.4% and 4.0% respectively, the lowest YoY% increases since the end of 2021:

Let’s take a look at a few other areas of interest.

First, new car prices continue to be largely unchanged, down -0.1% for the month and up only 0.7% YoY, while the story for used car prices is completely different, as they  increased 1.0% monthly and are up 6.0% YoY. Still, on a long term basis the two are within their historic relative ranges, as shown in the below long term graph which is normed to their early 1980s prices:

I suspect the rebound in used car prices is because car loan interest rates may be causing a bigger percent of purchasers to go to lower cost used vehicles.

Next, transportation services (mainly car repairs and insurance) lag the prices of new and used cars. Inflation here has returned to below 4.0% YoY this year. But note that inflation in maintenance and repairs has increased from 5.0% to 8.5% YoY in the past three months:

I suspect this is a direct result of the impact of tariffs.

Next, recently price increases in medical care services have also re-accelerated, and again this month increased 0.3% for a 4.2% YoY increase:

Finally, gas for utilities and electricity costs have also turned up sharply this year. In August the former increased 2.5% and the latter 1.0%. On a YoY basis, they are up 13.8% and 6.2%, respectively:

At least some of this is probably due to a sharp increase in demand caused by the enormous use of electricity in data-mining plants used for AI. Ordinary residential customers are not going to be thrilled, to say the least.

In sum, August’s consumer inflation report continued the trend of the two previous months, in which I wrote that consumer inflation was in a transitionary period. In August, the transition is further along, with shelter having disinflated to the cusp of its pre-COVID range, while inflation elsewhere has re-accelerated. The Fed is in the unenviable position of having to pick its poison, while there is massive political pressure to print free money for T—-p.