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Even with strong capex, US nonfinancial corporations are generating more cash than they are investing

Robert Brusca

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Japan’s industrial production rose in July largely on a jump in gas & electric utilities output. But manufacturing IP made a small move backward, with output falling by 0.1% month-to-month. Consumer goods output did turn sharply lower in July, dropping by 1.3% month-to-month, but intermediate goods output advanced by 0.2% as capital goods output continued to gear up, rising 3.2% month-to-month after rising 5.5% month-to-month in June. These gains in capital goods output followed a 3.1% drop in May.

Overall industrial output sequential gains show an accelerating output trend. The 12-month gain is 3.6%, the six-month annualized gain is nearly identical at 3.5%, and the three-month annualized gain is at a hefty 9.7%.

Sequential trends in manufacturing show more fluctuations and less of an arrow-straight trend. For manufacturing, 12-month growth is 4%, while three-month annualized growth is 8%. There is a lull in between, with six-month growth showing a 0.2% annual rate decline. Manufacturing sectors generally show a similar pattern, with solid 12-month growth, weaker growth over six months, and a pick-up over three months, with the three-month pace rebounding and turning sharply stronger than its 12-month pace.  We see that for intermediate goods and capital goods, with only consumer goods showing steady output deterioration from 12 months to six months to three months. Yet, as the graphic shows, retail sales are holding up and tracking with industrial output gains overall.

On a quarter-to-date basis, very early in Q3, output is rising at a 12.3% annualized rate over its Q2 level. Manufacturing output is up at a 7.6% pace. Consumer goods output is a drag, with output falling at a 5.1% annual rate, offset by a 5.4% gain in intermediate goods and capital goods output exploding at a 40.1% annual gain. Utilities & mining output also are rising clearly and strongly in the quarter.

However, Japan’s economy is still in recovery mode. As the table clearly shows, all IP measures are lower than they were one year ago. The economy is still digging out after retrenchment. Moreover, output is still broadly weaker than it was in January 2020 before COVID struck. That’s a long time for output to not have risen, 6½ years. On that comparison, only investment goods output and electric & gas utilities output are higher in July of this year than in January 2020, and in both cases it is by less than 2%.

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Japan is having an output revival. It looks real. The weakening of the yen may have given it a tailwind. Now the yen is stabilizing and gaining back some of that loss, but I do not look for yen appreciation to run far or fast.

For now, Japan manufacturing is reviving, and this is clear in the IP report as well as in the PMI surveys. The economy watchers don’t quite seem to see it yet. But motor vehicle production is back in gear, and the leading economic index is showing solid upward momentum. Japan, much like the U.S., is showing better industrial revival statistics than consumer confidence readings, which continue to lag. Income growth in Japan shows solid performance, and asset valuations are high, but consumers are not eager to spend, or so they tell surveys. Consumers also give their overall livelihood assessment a poor score. Still, consumers manage to spend enough to keep retail sales advancing after some significant retrenchment in 2025. Japan’s economy, like the U.S., seems to still be expanding and not under any real threat despite its irregularities.

Japan

Japan’s IP Shows Developing, Solid Uptrend

Tian Yong Woon

In this week's Letter, we examine the divergences running through Asia's inflation, monetary policy and currency performance. Headline CPI inflation has risen across much of the region, driven in large part by the closure of the Strait of Hormuz. Underlying dynamics nonetheless remain disparate, with China recording the region's lowest inflation rates and India facing renewed food and oil pressures (chart 1). China warrants closer attention still, since its producer price inflation now runs far ahead of consumer inflation (chart 2). Weak passthrough to domestic prices, soft demand and Beijing's campaign against destructive price competition all help explain that gap. Disparate inflation outcomes, in turn, are feeding divergent monetary policy stances, though that divergence has narrowed somewhat (chart 3). India has paused its rate cuts, while the Bank of Japan continues its gradual normalisation. Japan also sits at the centre of a protracted rise in yields, shared with its major-economy peers. A decomposition suggests real yields, rather than breakevens, have been the greater driver, amid concerns about fiscal policy and capex (chart 4). Divergence runs through currency performance too, with relative standings shifting repeatedly on a trade-weighted basis (chart 5). The Indian rupee has been the worst performer year-to-date, only recently ceding that position to the Philippine peso. At the other end of the table, the Chinese yuan has been dethroned by a resurgent South Korean won. Strong AI-driven export inflows had long been offset there by persistent portfolio outflows.

**Inflation divergence**
Headline CPI inflation has risen across much of Asia this year, on many measures. Surging energy prices, driven by the continued closure of the Strait of Hormuz, account for a large part of that rise. Underlying inflation dynamics within the region, however, remain quite disparate from one economy to the next. External forces such as oil prices and supply shocks are only part of the story. Domestic conditions matter too, notably the strength of domestic demand and each economy's dependence on imported goods, which is another way of describing its degree of self-sufficiency. China illustrates the point, with inflation still short of breaking conclusively above the low to no inflation region. That owes arguably in part to domestic demand conditions, which remain comparatively weak. It has once again logged the region's lowest inflation rates in recent months, reclaiming that spot from Thailand (chart 1). India sits at the other end, having ceded the top spot for headline CPI inflation to the likes of Vietnam and the Philippines since early 2025. Its recent resurgence in consumer inflation nonetheless points to a dependence on imported oil. Fresh risks have also emerged more recently from food and agricultural shocks, tied to ongoing and possibly worsening El Niño effects.

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China merits a closer look, with producer price inflation now running far above consumer price inflation (chart 2). Producer price inflation has staged a resurgence after a protracted stretch of deflation. Consumer inflation, however, improved only briefly before recent readings slipped back towards the low to no inflation region. Several factors lie behind the producer price pickup, starting with low base effects from prior periods. Rising energy costs have added to it, as has surging demand in certain sectors, such as tech and AI-related goods. Some passthrough to export prices is evident, but passthrough to domestic prices has been weak. That weakness owes in part to soft domestic demand and may be eating into margins, leaving producer price inflation running well ahead of consumer inflation. This ties into the two-speed dynamic in China's economy, where externally facing sectors continue to outgrow more domestically oriented ones. Looking further out, the authorities' clampdown on excessive producer price wars, termed "involution", may push producer prices higher still.

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**Monetary policy divergence**
Monetary policy stances remain divergent across Asian economies, although that divergence has narrowed somewhat. A shared impetus to hold or tighten on inflation risks accounts for much of that narrowing. Take India, which until recently had the highest main policy rate among major Asian economies (chart 3). It had nonetheless been easing for a time, until protracted currency weakness and resurgent inflation arguably led the central bank to pause its rate cuts. The Bank of Japan, by contrast, has long been pursuing gradual policy normalisation, given its delayed exit from the prior era of easy monetary policy. Prior yen weakness and still-wide interest rate differentials with major peers have also lent credence to its tightening bias.

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Japan has drawn attention in recent weeks for its protracted surge in yields, alongside its major economy peers. Chart 4 decomposes that increase into real and breakeven inflation components, arguably pointing to the former as the greater driver. Inflationary risks, granted, remain live and potentially the more potent of the two. Japanese real yields have nonetheless surged considerably in their own right. That would not be the case were the recent move in nominal yields driven by non-real aspects alone. Instead, investor concerns or expectations of higher real yields are possibly at work. An expected large upcoming fiscal bill and intense capex spending sit among the likely drivers. Eyes now turn to the Bank of Japan's meeting this week for further cues, with a 25 bps rate hike expected.

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**Currency divergence**
We turn now to divergences in Asia's currency performance and the recent drivers behind them. On a trade-weighted basis, relative standings have shifted repeatedly through the course of this year (chart 5). At the bottom of the table sits the Indian rupee, the worst-performing Asian currency year-to-date. Capital outflows have weighed on it, as has a hefty oil bill reflecting India's heavy import dependence. Only recently has the Philippine peso taken over from it as the prime laggard. The top of the table has proved similarly unsettled. The Chinese yuan held the leading spot for much of the year so far, before being dethroned by the South Korean won. That marks a spectacular turnaround for the won, from briefly being this year's worst performer to its best. It is a reversal worth dwelling on, and we take it up in the next segment.

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That reversal is worth unpacking, since the won had been on the back foot for some time beforehand. Exports growth through the year has been high and accelerating, driven mainly by AI-related goods. Those persistent and strong current account inflows nonetheless did little to prop up the currency. Working against them were portfolio outflows from South Korea, which ran persistently in the opposite direction. It was only recently, against that backdrop, that the won staged its turnaround. Behind it sits South Korea's building domestic growth story, alongside back-to-back rate hikes by the Bank of Korea. Whether this currency recovery still has legs is another question.

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Asia

Economic Letter from Asia: Same Shocks, Different Paths

Winnie Tapasanun

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The Consumer Price Index advanced 0.4% in August after a 0.1% increase in July (unrevised) and a 0.4% decline in June (unrevised), according to the Bureau of Labor Statistics. The August rise matched the forecast in the Action Economics Forecast Survey. The y/y rate held steady at an elevated 3.4% in August (2.9% in August 2025). The CPI excluding food & energy rose a slightly more-than-expected 0.3% in August after a 0.2% rise in July and no change in June. A 0.2% increase had been expected. The y/y rate eased to 2.4%, the lowest since March 2021, from July’s 2.5%. The three-month rate for the headline CPI eased to 0.2% annualized in August from 0.5% in July, while the three-month rate for the core CPI accelerated to 2.0% from July’s 1.6%.

Combined with the stronger-than-expected employment report released on September 4 and the PPI data released yesterday (0.4% m/m; 5.4% y/y for the headline August PPI), today’s CPI report reinforces expectations of a 25bps Fed rate increase at the September 15-16 FOMC meeting. The fed funds futures market is currently pricing in an 86.5% probability of a 25bps rate hike versus 69.4% just before the CPI release.

Energy prices jumped 2.1% in August, the first m/m rise in three months, reversing a 1.5% decline in July. The y/y rate accelerated to 16.3%, the highest since May, from July’s 14.7%. The m/m increase reflected price rebounds of 10.1% (52.0% y/y) in fuel oil and 3.9% (27.4% y/y) in gasoline. In contrast, natural gas prices fell 1.1% (+4.4% y/y) in August following two successive m/m gains, and electricity costs slipped 0.2% (+3.8% y/y), the second m/m decrease in three months.

Food prices edged up 0.1% (2.7% y/y) in August, the fifth straight m/m increase, after a 0.1% uptick in July. Food-at-home prices were essentially unchanged (+2.2% y/y) following a 0.1% July dip. Within this category, prices of dairy & related products (+0.3%; -0.3% y/y), nonalcoholic beverages & beverage materials (+0.2%; +3.7% y/y), meats, poultry, fish & eggs (+0.1%; +1.1% y/y), and other food at home (+0.1%; +2.4% y/y) increased m/m in August, while prices of fruits & vegetables slid 0.4% (+3.2% y/y), the third consecutive m/m slide, and cereals and bakery products held steady (+2.6% y/y) following a 0.2% July rise. Meanwhile, food-away-from-home prices rose 0.3% (3.4% y/y) in August after rising at the same rate in July.

Goods prices less food & energy inched up 0.1% (0.7% y/y) in August after a 0.2% rebound in July. The m/m increase reflected price gains of 0.6% (6.3% y/y) in tobacco & smoking products, 0.4% (-2.3% y/y) in used cars & trucks, 0.3% (0.6% y/y) in new vehicles, and 0.1% (1.6% y/y) in alcoholic beverages. Prices of medical care commodities, however, fell 0.2% in August (-2.7% y/y), the sixth straight m/m fall; apparel prices held steady (+3.6% y/y).

Services prices less energy rose 0.3% in August on top of a 0.2% rise in July, with the y/y rate steady at 3.0%. Shelter prices grew 0.3% (3.0% y/y) in August after a 0.1% increase (3.2% y/y) in July, reflecting price gains of 2.4% (3.2% y/y) in lodging away from home, 0.2% (2.7% y/y) in rent of primary residence, and 0.2% (3.1% y/y) in owners' equivalent rent of residences. Transportation costs climbed 0.5% (2.4% y/y) in August after a 0.3% recovery in July, while medical care services prices were down 0.2% (+2.5% y/y), the second m/m decline in three months.

Notably, the CPI excluding food, shelter, and energy increased 0.3% in August after a 0.3% rebound in July. The y/y rate ticked up to 2.0% from July’s 1.9%.

Significantly, the closely watched supercore inflation measure—CPI services excluding energy services, rent of primary residence & owners' equivalent rent—rose 0.5% in August, the ninth m/m rise in 10 months, following a 0.2% rebound in July. The y/y rate quickened to 3.0% from July’s 2.8%.

The Consumer Price figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Monthly gains in headline CPI (0.4%) & core CPI (0.3%) advance.
- Year-over-year rates unchanged for headline CPI (3.4%) and slightly down for core CPI (2.4%), both remaining above the Fed’s target.
- Energy prices up 2.1% m/m, w/ the y/y rate accelerating to 16.3%, highest since May.
- Services prices up 0.3% m/m, w/ the y/y rate steady at 3.0%.
- Shelter prices up 0.3% m/m, w/ the y/y rate easing to 3.0% from 3.2%.
- Supercore CPI up 0.5%, w/ the y/y rate accelerating to 3.0% from 2.8%.

U.S. Consumer Price Inflation Steady in August at 3.4% Y/Y

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**One thing is clear: it is not a deflationary world**
Japan's PPI headline cooled in August, rising by only 0.1%. However, the headline for the all-manufacturing PPI rose by 0.3%, indicating more pressure.

Sequential inflation pressures for Japan’s overall PPI show a 7.6% gain over 12 months, accelerating to 12.7% at an annual rate over six months, and calming to a still-hot 4.5% over three months. For all-manufacturing, the 12-month gain is 7.7%, the six-month pace annualized is 12.4%, and the three-month pace annualized is 4.6%. These sequential results are very similar for these two series. Despite a substantial deceleration in place from 12 months to three months, the three-month pace is still hot, and the pace of the last two months is still at a troublesome 5% to 5.5%.

Japanese PPI data are available ahead of the CPI data. In the shaded columns of the table, we can compare PPI trends in the EMU and the U.S. through July, as well as Japan's own CPI trends.

These lagged comparisons show that PPI inflation in the European Monetary Union, while excessive over 12 months and six months, somewhat like Japan, has shown a sharper deceleration over three months. In the U.S., finished goods PPI inflation shows somewhat more tempered overall performance compared to Japan, but the just-released August data have turned hot again. The global PPI picture is not reassuring.

However, Japan's CPI, which is the more important reading for central bank attention, shows inflation at 2% over 12 months, rising to a 3% pace over six months and to a 4.4% annualized rate over three months. Japan’s core inflation similarly registers as an expansion of about 1.5% over six months and 12 months but logs a 2.8% increase over three months. Inflation remains restless.

Brent oil prices declined in August, but in spot markets oil is back over $100 a barrel, so it's not clear that we should view August, or the three-month trends, as good news. The Strait of Hormuz continues to be adversely affected. While some oil is getting out, clearly not enough is in circulation to calm world oil markets. In addition, there's a lot of concern about what's going to happen to LNG supplies as winter approaches and LNG is used for heating fuels, particularly in Europe.

Quarter-to-date inflation shows hot numbers for Japan's overall PPI and all of manufacturing. Running at a pace of about 6% in the quarter, there's not much that's reassuring despite the fact that there is a step-down of inflation in August. And will the August ‘print’ even be sustained?

The right-hand column shows the correlation between the price measures in the stub of the table at the left and oil prices. Japan's PPI has positive correlations of about 0.4 with Brent; the European Monetary Union has a PPI correlation of about 0.55. In the U.S., the PPI finished goods index has a correlation of about 0.4. However, in Japan, the CPI has a negative correlation of about -0.2 to -0.4.

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The Bank of Japan has been on a bit of a hot spot as its inflation numbers have run on the hot side for the measures that it focuses on the most. The yen has been weak, and there have been U.S. and Japan operations sporadically to try to support the yen and keep it from continuing to slide. Some of the intervention monies that have been spent have been extremely large. One issue in Japan is an unexpected step-up in fiscal spending by the relatively new Takaichi government that has staked out a need to invest and modernize Japan’s industry to cement future competitiveness. Still, oil prices and foreign exchange values loom large in terms of gauging inflation and monetary responses in Japan. Fiscal spending also has markets on their back foot worried about excess spending. We are looking to upcoming U.S. Federal Reserve and Bank of Japan meetings in the week ahead. With a new U.S. CPI released, it's going to be harder for the Federal Reserve to hold its line on interest rates because inflation is excessive; it is not stepping down, and it may be stepping up its pace. On top of that, the Fed has to decide how it wants to deal with increasingly unruly energy prices.

The U.S. situation is complicated by being involved in an unpopular war with midterm elections coming, having a president who's looking to pull out any stops he can to improve his popularity, at a time that he appears to be stuck in a war that's unpopular and that unpopular war is also priming inflation by causing economic assessments to become increasingly dour. The U.S. conflict with Iran will determine the fate of the Strait of Hormuz and oil price developments globally for the foreseeable future. It is a particularly difficult time for policy in the U.S. At the same time, the U.S. has been doing whatever it can to help Japan control its slippery weak exchange rate because controlling that rate is also in U.S. interests.

Japan’s PPI Cools in August – Still Runs Hot

Andrew Cates

**Growth surprises support the equity rally**
The balance of economic news has become more favourable for equities in recent weeks. Across the G10, growth data have increasingly beaten expectations, Incoming inflation data in the meantime have been surprising to the downside. And that differential (growth surprise compared with inflation surprise) has moved closely with global share prices. The relationship is intuitive: investors welcome stronger activity when it is not matched by a comparable rise in price pressure. And that helps explain why equities have remained resilient despite rising bond yields. But it is also a fragile configuration. This week's US producer- and consumer-price releases will show whether the improvement in US growth can continue without prompting a less benign reassessment of inflation and monetary policy.

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**Uncertainty recedes, but remains high**
Some of that underlying resilience in the world economy arguably reflects a modest clearing of the policy fog. Global and US measures of economic policy uncertainty have fallen sharply from the peaks reached earlier this year. But both indices remain far above their long-run norms. The retreat has coincided with stronger equity markets, though the level still matters. Firms making investment decisions face continuing uncertainty over trade rules, costs and financing conditions. The economic outlook may have improved, but it rests on a policy environment that remains unusually unsettled.

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**A world tilting towards reflation**
An AI-generated global growth-inflation map (see chart 3 below) points to an increasingly reflationary world economy. Built from OECD and national statistics, it positions each major economy by two gauges of momentum over the past six months — the change in its OECD composite leading indicator, a guide to the direction of growth, on one axis, and the change in consumer-price inflation on the other — with each bubble scaled to the size of the economy. The four quadrants that result correspond to reflation, where both are rising; stagflation, where growth fades while inflation climbs; a benign mix of firmer growth and easing prices; and a broad slowdown. The United States, India and South Korea sit in the first of these, where both growth and inflation momentum are strengthening. Japan and Mexico occupy the more benign position of improving activity and easing price pressure, while the United Kingdom, Australia and Indonesia remain in the slowdown quadrant. China is different again: growth momentum has weakened while inflation momentum has risen from an exceptionally subdued starting point. These positions describe changes over the past six months, not the level of growth or inflation. Even so, the dispersion might make a synchronised global monetary cycle less likely. Central banks are confronting quite different domestic conditions.

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**Supply pressure stirs again**
The reflationary turn also has a supply-side dimension. Global supply-chain pressure has risen again after the long normalisation that followed the disruption of 2021 and 2022. The index has historically led producer-price inflation in advanced economies by about six months, so its latest increase points to firmer price pressure in the production pipeline. This is a signal rather than a forecast: companies can absorb some higher costs in their margins, and the pass-through to consumers depends on demand. But it suggests that the goods disinflation which helped pull headline inflation lower may be losing force.

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**The Phillips curve steepens**
Renewed supply pressure matters more when domestic economies have little spare capacity. The Phillips curve, which describes the relationship between labour-market tightness and inflation, appears to have steepened since 2020 across the United States, the United Kingdom, Japan and Canada. Chart 5 below is built by regressing consumer-price inflation on the ratio of job vacancies to unemployment — a cleaner gauge of tightness than unemployment alone — while controlling for global supply-chain pressure and energy prices, and then comparing the estimated sensitivity before and since 2020. On that basis the result remains after allowing for supply-chain and energy shocks. In other words, a given increase in the ratio of job vacancies to unemployment is now associated with a larger rise in inflation than it was before the pandemic. Supply shocks still matter, but they may pass into wages and prices more readily when labour markets are tight. The final stage of disinflation could therefore prove more costly than the first.

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**The rise in yields is a real-rate story**
This backdrop helps explain the move in the bond market. The recent rise in the US 10-year Treasury yield towards 5 per cent has not been driven mainly by inflation expectations, which remain broadly stable. The Federal Reserve's DKW model instead attributes much of the increase to higher expected real short-term rates and a larger real term premium, the extra return investors demand for holding long-dated debt. Markets are repricing the real cost of capital rather than signalling a collapse in the inflation anchor. Heavy government borrowing and strong investment in defence and artificial intelligence fit that account. But the distinction offers limited comfort if renewed supply pressure and stronger demand eventually begin to lift inflation expectations as well.

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Financial markets have entered September in an awkward mood. Global equities have advanced, but long-term bond yields have risen towards multi-decade highs as the European Central Bank meets this week and the Federal Reserve and Bank of Japan prepare to follow. The common thread is a turn towards reflation: growth is firming while inflation remains stubborn. Growth surprises have improved relative to inflation surprises, supporting equities (chart 1), while policy uncertainty has retreated from its peak but remains unusually high (chart 2). Most major economies are now on the expansionary side of the growth-inflation cycle (chart 3). Yet supply-chain pressure is returning (chart 4), inflation has become more responsive to tight labour markets since 2020 (chart 5), and the rise in bond yields has been driven largely by higher real rates rather than inflation expectations (chart 6).

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Charts of the Week: The Reflationary Turn

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Existing home sales fell 2.0% m/m (-1.2% y/y) to 3.98 million units (SAAR) in August, the third consecutive m/m fall and the lowest level since June 2025, after a 1.7% decrease to 4.06 million in July (unrevised), according to the National Association of Realtors (NAR). The Action Economics Forecast Survey had expected August sales of 4.00 million units. Sales remained 38.1% below a high of 6.43 million in January 2022 and 39.7% below a peak of 6.60 million in January 2021. The August decline coincided with a rise in the average 30-year fixed mortgage rate to 6.67%, the highest since July 2025, after increasing to 6.54% in July, according to Freddie Mac. The sales figures are based on closings of sales contracts signed over the past couple of months.

Existing single-family home sales fell 1.9% (-1.1% y/y) to 3.62 million units in August, the third successive m/m decline and the weakest reading since June 2025, following a 1.9% fall to 3.69 million in July, remaining 36.5% below a high of 5.70 million in January 2022. Sales of condos and co-ops decreased 2.7% (-2.7% y/y) to 360,000 in August, the lowest level since May 2025, after registering at 370,000 from February through July, remaining 50.7% below a high of 730,000 in January 2022.

Regionally, August existing home sales declined m/m in all regions, while remaining flat in the West. Sales in the Northeast, down for the first time since March, dropped 4.0% (-2.0% y/y) to 480,000 in August, a three-month low, reversing a 2.0% increase in July. Sales in the Midwest fell 3.1% (-2.1% y/y) to 940,000, the lowest reading since April, after falling 2.0% in July and June, and sales in the South slid 1.6% (0.0% y/y) to 1.84 million, a one-year low, after a 2.6% July drop; both posted the third straight m/m decline. Sales in the West were unchanged m/m (-2.7% y/y) at 720,000 following a 1.4% July slide, marking the lowest level since July 2025. Notably, the South remained the dominant region, accounting for 46.2% of total U.S. existing home sales.

The median price of all existing homes (NSA) fell 1.7% (+1.6% y/y) to $429,100 in August, the lowest since April, following a 1.4% decrease to $436,400 in July ($434,100 previously) and five consecutive m/m rises. Prices remained 18.9% above a low of $360,800 in January 2023. The median price of an existing single-family home slid 1.7% (+1.7% y/y) to $434,800 in August, a four-month low, after a 1.4% decline to $442,500 in July. The median price of condos and co-ops slipped 0.9% (+1.5% y/y) to $371,600, the lowest since March, on top of a 1.9% July drop to $375,000. Regionally, overall prices fell m/m in August in the South (-2.0%; +0.7% y/y), Midwest (-1.3%; +3.3% y/y), Northeast (-1.3%; +4.3% y/y), and West (-0.2%; -0.2% y/y).

Inventories of homes for sale climbed to the highest level since November 2019. The number of existing homes for sale (NSA) rose 3.2% (5.9% y/y) to 1.62 million units after holding steady m/m at 1.57 million in July. The supply of homes on the market at the current selling rate (NSA) increased to 4.9 months in August, the highest level since November 2015, from 4.6 months in July and June. A record low in supply of 1.6 months was in January 2022.

The data on existing home sales, prices and affordability are compiled by the National Association of Realtors. The data on single-family home sales extend back to February 1968. Total sales and price data and regional sales can be found in Haver's **USECON** database. Regional price and affordability data and national inventory data are available in the **REALTOR** database. Mortgage interest rates can be found in the **WEEKLY** database. The expectations figure is from the Action Economics Forecast Survey, reported in the **AS1REPNA** database.

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- August sales -2.0% m/m to 3.98 mil., third straight m/m fall; -1.2% y/y, first y/y drop since March.
- Sales m/m down in the Northeast (-4.0%), Midwest (-3.1%), and South (-1.6%); flat in the West.
- Sales y/y down in three regions; unchanged in the South.
- Median sales price -1.7% (+1.6% y/y) to $429,100, a four-month low.
- Unsold inventory +3.2% (+5.9% y/y) to 1.62 mil. units, highest level since Nov. ’19; 4.9 months' supply, highest since Nov. ’15.

U.S. Existing Home Sales Decline in August to Lowest Level Since June ’25

Sandy Batten

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The Producer Price Index for final demand increased 0.4% m/m (5.4% y/y) in August following an upwardly revised 0.1% monthly gain in July (previously unchanged), according to the Bureau of Labor Statistics (BLS). The Action Economic Forecast Survey expected a 0.4% m/m increase in August. Producer prices excluding food, energy & trade services (the new core index) rose 0.3% m/m (4.7% y/y) after rising an unrevised 0.4% m/m in July. The PPI excluding food and energy (the previous core index) increased 0.2% m/m (4.6% y/y) versus an upwardly revised 0.3% monthly gain in July (previously 0.2% m/m). A 0.3% m/m increase was expected for August.

Financial markets have placed a great deal of emphasis on today’s PPI report and tomorrow’s CPI report in forming expectations for the outcome of next week’s FOMC meeting. Today’s PPI report showed a slight pickup in inflation due mostly to a rebound in energy prices, but this was generally as expected. So, today’s report is not likely to have very much influence on expectations for next week’s FOMC meeting. The fed funds futures market is currently pricing in a 70% probability of a 25bps rate hike next week versus 64% just before the PPI report.

The index for final demand goods advanced 1.1% m/m (7.7% y/y) in August following two consecutive decreases. Over three-fourths of the broad-based monthly rise can be attributed to prices for final demand energy, which jumped 4.2% m/m after having declined in both June and July. The index for final demand goods less foods and energy increased 0.4% m/m (5.1% y/y) while the index for final demand foods increased 0.1% m/m (0.1% y/y), its first monthly gain in three months. Over a third of the August increase in the index for final demand goods can be traced to prices for diesel fuel, which jumped 24.1% m/m. Prices for gasoline, jet fuel and home heating oil also rose. In contrast, prices for residential electric power fell 0.5% m/m in August.

The index for final demand services edged up 0.1% m/m (45% y/y) in August, the third consecutive increase. The August advance can be attributed largely to a 2.3% m/m jump rise in prices for final demand transportation and warehousing services. In contrast, the index for final demand trade services fell 0.2% m/m (+4.5% y/y) in August, the third monthly decline in the past four months. Prices for final demand services less trade, transportation, and warehousing were unchanged in August from July (+3.5% y/y). Leading the August increase in the index for final demand services, prices for truck transportation of freight advanced 2.0% m/m, the first monthly increase in three months and a reflection of the surge in the price of diesel fuel in August. The indexes for airline passenger services, legal services, hospital inpatient care, and automobiles retailing also rose. In contrast, margins for fuels and lubricants retailing decreased 11.3% m/m.

Construction costs were unchanged in August from July (+5.3% y/y) following a 2.2% monthly jump in July.

Prices for intermediate demand for processed goods jumped 1.8% m/m (11.5%) in August after declines in each of the previous two months. The August rebound again was due largely to a 7.3% monthly surge in energy prices. Processed foods prices fell 0.1% m/m while prices of processed goods less foods and energy rose 0.5% m/m.

The PPI data are published by the Bureau of Labor Statistics and can be found in Haver’s **USECON** database. Further detail is contained in **PPI** and **PPIR**. The expectations figures are available in the **AS1REPNA** database.

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- The PPI increased 0.4% m/m (5.4% y/y) in August, in line with expectations, reflecting a 4.2% m/m rebound in energy prices.
- The core PPI rose 0.3% m/m (4.7% y/y).
- Final demand goods prices jumped 1.1% m/m, largely due to higher energy prices, following a 0.4% m/m decline in July.
- Final demand services prices edged up 0.1% m/m in August, the slowest monthly gain in three months.

U.S. Producer Prices Boosted by Rebound in Energy Prices in August

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance edged down by 1,000 to 206,000 in the week ending September 5, from 207,000 in the week ending August 29, revised marginally from 206,000. The four-week average was 206,000 as well in the September 5 week, down from 207,500 in the August 29 week. Claims remain largely range-bound at historically low levels between 200,000 and 230,000. The Action Economics/Haver Analytics Survey looked for 205,000 claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”— inched down by 1,000 to 1.774 million in the week ending August 29, from 1.775 million in the week of August 22, revised down from 1.779 million. The four-week moving average was 1.779 million in the August 29 week versus 1.781 million in the prior week. The insured unemployment rate remained unchanged at 1.2% in the week of August 29.

The insured unemployment rate varies greatly across individual states and territories. In the week ending August 22, the highest unemployment rates were in Massachusetts (2.09%), Rhode Island (2.18%), Puerto Rico (2.57%), and New Jersey (2.62%). The lowest rates were in South Dakota (0.22%), Florida (0.34%), Alabama and Louisiana (both 0.36%), North Carolina (0.38%), Arkansas (0.43%), Nebraska (0.45%), Iowa (0.46%), Kentucky (0.47%), Kansas (0.48%), Tennessee (0.47%), and North Dakota and Wyoming (both 0.49%). Rates in other notable states include Texas (1.04%), Illinois (1.47%), Pennsylvania (1.60%), New York (1.74%) and California (1.82%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.

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- New claims edged down by 1,000 to 206,000 in the week of September 5.
- Continuing claims inched down by 1,000 to 1.774 million in the week ending August 29.
- The insured unemployment rate was unchanged at 1.2% in the week of August 29.

U.S. Initial Unemployment Claims Inched Down in the Week of September 5

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Total retail sales rose a larger-than-expected 1.2% m/m to $773.9 billion in August, the sixth monthly gain in seven months, after a 0.5% decline in July (-0.6% initially) and a 0.3% increase in June (+0.2% previously), data from the U.S. Census Bureau showed, pointing to resilient consumer spending and solid domestic demand in Q3 2026. A 0.8% m/m August rise had been expected in the Action Economics Forecast Survey. The year-on-year growth rate accelerated to 6.0% in August from 5.0% in July (4.7% in August 2025), while remaining well below a high of 17.1% in February 2022 and a record high of 51.8% in April 2021.

Excluding motor vehicles & parts, retail sales grew a greater-than-expected 1.4% (6.9% y/y) in August, the first m/m rise since May, following a 0.2% decline in July (-0.3% initially). A 0.5% m/m August increase had been expected. Sales of motor vehicles & parts rose 0.6% (2.1% y/y), up for the third time in four months, after a 1.8% July drop; this compared to a 2.0% gain (1.3% y/y) in unit light vehicle sales following a 1.0% July decrease.

Sales in the retail control group, which excludes autos, building materials, gasoline stations, and food services, rebounded 1.4% (5.6% y/y) in August, the seventh m/m gain in eight months, following a 0.4% decline in July, pointing to solid underlying consumer demand in Q3 2026. These sales are used in the construction of personal consumption expenditures in NIPA accounts. Nonauto sales excluding gasoline & building materials climbed 1.3% (5.7% y/y), up for the seventh time in eight months, after a 0.2% July decline.

Sales by category mostly increased in August. Posting the largest m/m gain among major categories, gasoline station sales jumped 3.1% (21.0% y/y) in August, the first m/m increase since May, after a 0.2% decrease in July. Nonstore retail sales recovered 2.6% (9.9% y/y), the seventh rise in eight months, following a 1.7% July drop. Miscellaneous store sales rebounded 1.9% (14.0% y/y), the third m/m gain in four months, after a 0.6% July slide. Electronics & appliance store sales rose 1.6% (7.8% y/y), the second m/m increase in three months, following a 0.1% July slip. Sporting goods, hobby, book & music store sales advanced 1.2% (10.7% y/y), the seventh consecutive m/m gain, on top of a 0.2% July increase. Furniture & home furnishing store sales grew 0.9% (1.9% y/y), the first m/m rise in three months, after a 0.2% July decline. Clothing & accessory store sales rose 0.7% (4.3% y/y), up for the third time in four months, following a 1.3% July gain. Meanwhile, general merchandise store sales climbed 0.7% (4.5% y/y) in August after a 0.5% increase in July; within this category, department store sales fell 0.8% (+1.9% y/y) following a flat July reading. Building materials & garden equipment store sales decreased 0.2% (+5.1% y/y) following a downwardly revised 0.1% decline in July (+0.3% initially) and eight straight m/m gains.

In the nondiscretionary sales categories, health & personal care store sales rose 0.9% (+1.9% y/y) in August, the third m/m rise in four months, after a 0.3% increase in July. Food & beverage store sales recovered 0.4% (0.5% y/y) after declining 0.2% in July and June.

Consumers appeared to dine out more frequently in August despite still-elevated inflation (August CPI +0.4% m/m, +3.4% y/y; core CPI +0.3% m/m, +2.4% y/y). Restaurant & drinking place sales advanced 1.2% (+5.8% y/y) in August, the fifth successive m/m gain, after a 0.5% increase in July.

**Note**: The Federal Reserve unanimously voted to raise its benchmark interest rate by 25 basis points to a target range of 3.75% to 4.00%. The statement issued following today's FOMC meeting is available [here](https://www.federalreserve.gov/newsevents/pressreleases/monetary20260916a.htm).

Retail Sales data can be found in Haver's **USECON** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Total retail sales +1.2% (+6.0% y/y) in August; sixth m/m increase in seven mths.
- Ex-auto sales +1.4% (+6.9% y/y), first m/m rise since May; auto sales +0.6% (+2.1% y/y), third rise in four mths.
- Ex-gas sales +1.1% (+4.9% y/y) and ex-auto & gas sales +1.2% (+5.6% y/y); both up m/m from Jan. through Aug. except July.
- Retail control group +1.4% (+5.6% y/y), seventh m/m gain in eight mths., pointing to solid underlying consumer demand in Q3 ’26.
- Gains m/m: gasoline stations (+3.1%), nonstore sales (+2.6%), misc. stores (+1.9%), electronics stores (+1.6%).
- Declines m/m: department stores (-0.8%), building materials & garden equipt. stores (-0.2%).

U.S. Retail Sales Rebound in August, Exceeding Forecasts

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