KEY DATA: Home Sales: -0.9%; Over-Year: +0.8%/ LEI: -0.2%/ Claims: -8,000

IN A NUTSHELL: “It’s tough to buy something that is not for sale and that may be the biggest problem with the housing market.”

WHAT IT MEANS: The housing market cannot get out of its own way and once again we got a not so great sales report. Existing home sales fell modestly in August, the second consecutive decline. The sales pace is the lowest since February. The Northeast did pretty well but the rest of the nation posted declines. What was most disconcerting in the report was another drop in inventory. The number of homes on the market fell by over 3% from July and by over 10% from August 2015. After bottoming last December, the supply of homes for sales moved upward nicely until May. It is now back into a declining trend. This has to frustrate buyers, as the pickings appear to be slim. Of course, home prices are rising nicely, so sellers are not so troubled by the lack of competitors.

The Index of Leading Indicators declined after being up solidly over the previous two months. The trend is still up, but it looks like the rate of growth may be slowing.

One number that remains strong is the number of people applying for unemployment insurance. The jobless claims number dropped again last week and it keeps telling the world that the labor market is tight and getting even tighter, no matter what the Feed Chair says.

MARKETS AND FED POLICY IMPLICATIONS: If you just looked at the headline existing home sales number, you would conclude that the housing market is soft. But that is not necessarily the case. If there aren’t a lot of goods on the shelves, there is not likely to be a lot of goods sold, and that is true with housing as well. Rates are low, household income is rising solidly and the number of homes with minimal or negative equity is declining sharply. That implies the demand for homes should be rising. I can accept a decline in any given month, but when you have a drop over the month and the year-over-year increase is minimal, that says the market is going nowhere. But does this softness imply overall economic weakness? Not if it was due to the lack of supply, and that brings me back to the Fed.

FOMC Decision Commentary: Yesterday, the FOMC kept rates stable, which wasn’t a surprise. But there was a lot of dissension at the meeting. Three voting members voiced their displeasure by voting no. Three out of ten is not a small number. Fed Chairs don’t like to see that level of unhappiness made public, so the three negative votes has to be wake up call for Chair Yellen. Her problem is that she is sticking to the incoming data foolishness. With the world economy dealing with negative interest rates, it is not likely we will see three months of consistently good data between now and the December meeting. (With the Fed Chair reading a prepared statement on the Fed and the election in response to a question, it is clear the members want to stay totally away from any action in November that may appear political, though I have no idea how a rate hike would help either candidate.) We should get some good one and some weak ones. This Fed has shrunk from action when data or markets were less than hoped for. And the election adds some more uncertainty to a move. Basically, there are just too many parts that are moving in too many directions to get a consistent reading on the economy. Thus, if the Fed remains tethered to the near-term data, and if the members want to make a move in December, they better come up with good excuses to do so, because the numbers are not likely to provide the cover. And with three members already screaming out loud that a move is necessary, it is very likely that one will happen in December.