KEY DATA: Sales: 0%; Prices: +4.6%/ LEI: +0.4%/ Phila. Fed (Manufacturing): +11 points: Claims: -3,000

IN A NUTSHELL: “The housing market looks to be the only soft-spot in a solid economy.”

WHAT IT MEANS: Second quarter growth was strong, it looks like the economy expanded solidly in the third quarter and if the measures of future growth have any validity, the good economy will continue into next year. But then there is housing. Housing sales are going nowhere, unless they are going down. Existing home demand was flat in August as increases in sales in the Northeast and Midwest were offset by weaker activity in the South and West. Both single-family and condo purchases were flat as well, which is really weird. I hope the National Association of Realtors didn’t mess up the data. As for prices, they are still rising moderately. However, the rate of gain is easing and it should continue decelerating.

Despite the issues with the housing market, the outlook for the next six months is very good. The Conference Board’s Leading Economic Index rose solidly in August after strong gains in June and July. Growth should remain at or possibly above 3% for the rest of the year. However, the report did provide a note of caution: “The US LEI’s growth trend has moderated since the start of the year.” But most economists have cautioned that the strong second quarter increase was not likely to be sustained.

Manufacturing was another sector that seemed to be on the brink of a slowdown. Output gains were slowing and the trade battles were helping. But the Philadelphia Federal Reserve Bank’s manufacturing Index popped back up in early September, as orders rebounded. Hiring picked up and shipments increased. Confidence, though still high, continues to fade, which is inline with national indicators about the sector.

Jobless claims fell again last week. The level is the lowest since November 1969. No more needs to be said.

MARKETS AND FED POLICY IMPLICATIONS: The economic data are taking a back seat to the political/economic issues, in particular, trade concerns. You know things are crazy when investors say that the new tariffs are not as bad as was feared so let’s party hardy. Really, new tariffs and counter measures are something to celebrate rather than fear? The Chinese are masters at the non-tariff tariff and those are being imposed. Also, saying that the stimulus package will overcome the tariffs only implies that the tariffs will slow the economy from what we could have had without them. Regardless, today’s numbers were mixed. It was nice to see the economy should expand solidly over the next six months, but that is a surprise to no one. The housing market’s blues will likely only get worse as the Fed will be continuing to raise rates, starting next week. Oil prices are slowly increasing, which is further impinging on the purchasing power of the average household. So yes, the markets are booming and that is great, but unless that wealth is spent, it means little. And the average household is not spending those gains, as they are either not getting much of them or they are in their retirement accounts. So, I continue to warn that as we move through next year, conditions should deteriorate and if the trade skirmishes (my phrase, I used it months before Jamie Dimon) heat up and Chinese growth slows, the world and yes, U.S. economy will feel the pain.