Down and both prior months revised down as well. And this was before mtg rates spiked, and before mass layoffs were announced by mortgage originators, etc. And ‘months supply’ rose to a somewhat ‘normal’ 5.2 months of supply at the current sales pace, taking some wind out of the ‘supply shortage’ story. And a measure of price declined from last month softening that story as well. All still up some from the same month last year, but the year over year gains are decelerating post fiscal tightening

It’s now hard to say housing has improved since the last Fed meeting.

The August employment report will be telling, as the initial report of July job increase dropped to 160,000. A lower number means that series would be worse than what the Fed was expecting as well

Two things:

First, this report and the revisions, like the revisions to Q1, fit the narrative that austerity works to slow the economy. And so do the ‘revised’ numbers such as Q1 GDP. It’s the 200+ year old identity that in a monetary economy the demand leakages (agents spending less then their incomes) have to be overcome by others spending more than their incomes, or the output doesn’t get sold. So last year’s growth included the govt spending maybe 7% more than it’s income for that GDP to be posted. And this year, through automatic and proactive measures, govt is limited to spending 3% more than it’s income. That means the difference has to come from other agents spending more than their incomes or that much output doesn’t get sold. Yes, that kind of private sector credit expansion is possible, but I sure don’t see any evidence of that kind of credit expansion. So I don’t see growth increasing until that does happen. It’s not about ‘the govt cuts subtracted from GDP, so when that effect passes growth resumes’ Instead, it’s ‘govt was adding 7%, and now it’s adding only 3%, and growth will cause that to fall further via the automatic stabilizers until the cycle ends.’ That’s why they are called ‘stabilizers’- they cause the deficit to grow in a down turn until they cause the deficit to get large enough to reverse the decline, and they cut net govt spending until it’s too small to support the credit structure and it all goes into reverse.

And, of course, no one of political consequence sees it that way, as Congress and most others continue to judge deficit reduction as success that will somehow
lead to prosperity. So I only see it getting worse.

Also, as previously discussed, I see growth of industrial production as a sign of duress. Globally, for the most part that kind of thing goes to the nation that can feed its workers the fewest calories, in a brutal race to the bottom. Like Japan’s recent currency depreciation initiative taking a 25% bite out of real wages followed by export growth, etc.

Second, the whole QE thing is ‘perverse’ in that it doesn’t actually do anything of further economic consequence but market participants, and the Fed, act as if it does matter for the macro economy. And it also has some what can be called ‘supply side’ effects as it shifts available private sector assets between reserves, tsy secs, and agency mortgage backed securities.

So, for example, if tapering is on, stocks fall as its presumed the reason stocks went up was QE, and tsy and mbs yields rise as the Fed will be buying fewer of those things. And mixed into all that is the notion that the Fed tapers because it thinks the economy is strong, which should be good for stocks, but also cause yields to rise, which is bad for stocks. So the entire thing is a confusion of reaction functions and misperceptions.

It’s all something like the Keynesian beauty contest but with all the judges legally blind.

So if it goes ‘tapering off’ due to weak employment numbers from a weakening economy, is that good for stocks because QE continues, or bad because the economy is faltering?

And it will result in lower yields for both reasons.

One last thing.
The Fed minutes stated, as they always do, is that one of the reasons supporting their ‘improving growth’ forecast is the positive effect from ‘monetary accommodation’ that, in my humble opinion, as in Japan that has done far more far longer than we have, has failed to materialize going 5 years now. And all they have it the counterfactual using the same methodology that shows how much worse it would have been otherwise .

Again, in my humble opinion, history will not be kind to any of these people.