KEY DATA: Consumption: +0.4%; Disposable Income: +0.4%; Prices: 0%; Excluding Food and Energy: 0.1%/ Pending Sales: -1.4%

IN A NUTSHELL: “Consumers are spending their growing incomes and that should help the confused members of the Fed make up their minds about raising rates.”

WHAT IT MEANS: If the Fed members need data that show the economy is in good shape, all they have to do is look at the consumer spending and income numbers. Consumption jumped in August after rising solidly in July, indicating the households are out there doing their part to make sure that the economy is strong. We knew that vehicles were flying out of showrooms, but people also spent heavily on nondurable goods and services. Services, which are two-thirds of spending, had been lagging until this year and the rise we have seen continues unabated. So far this quarter, adjusting for inflation, consumption is growing at a very respectable 3% pace. Can this pace be sustained? Given the income numbers, absolutely. Disposable income, which is what we actually have to spend, not what we earn, rose strongly for the fifth consecutive month. Even adjusting for inflation, household earnings are rising solidly. The key has been a rebound in wages and salaries. They are now growing decently and given largely nonexistent inflation, consumer spending power is up a robust 3.7% since August 2014.

On the housing front, the National Association of Realtors reported that pending home sales fell in August, which was unexpected. Only in the West did contract signings rise. Demand is up solidly over they year, but the rate of increase is slowing, in part because of higher prices but also because there is not much inventory to choose from. Black Knight Financial reported that their National Home Price Index rose moderately in July and is up 5.3% over the year. The Index is only 5.5% below the peak reached during the housing bubble.

MARKETS AND FED POLICY IMPLICATIONS: Fed members, including Chair Yellen and NY Fed President Dudley, are trying to ease the confusion created after the last FOMC meeting. While that may have be an heroic task given the Tower of Babble that the Fed has become, today’s talk by Mr. Dudley did reinforce Chair Yellen’s Thursday’s comments that the suddenly critical international events were really not that important, so never mind. Mr. Dudley also reiterated that he thought rates would rise this year and inflation could actually reach the Fed’s 2% target next year. This is the person who warned that a rate hike was “less compelling” just before the last meeting, so listen carefully to his words. The Fed members, at least those in favor of raising rates soon, look like they got the message to talk with a unified voice. That voice says rates will be increased this year, so maybe we should believe them. Maybe. Clearly, the U.S. economy is growing solidly and if you believe the Blue Chip Forecasters panel, of which I am a part, we should get above-trend growth once again in the third quarter as well as next year. Panelists also expect inflation to exceed 2% soon. Conditions are either already in place, or are expected to be in place in the foreseeable future, for the Fed’s growth and inflation targets to be met. Whether the members act or not this year, though, remains anyone’s guess.