• The payroll relief thickens the plot for the FOMC as Trump threatens to cease all trade with anyone who has a trade surplus with the US unless the FOMC eases. That means the EU, Canada, Mexico, China, and Japan to start (or a majority of US trade) before we move onto the next tier of trade partners.

• It is hard to anticipate a rational and orderly closeout of 2026 with respect to the FOMC or the macro inflation inputs (including payrolls) with trade policies still being used like a risk-free instrument. Bat guano demented is the only way to frame the latest outburst with the FOMC meeting slated for 15^th-16^th.

• The August payroll numbers were modestly favorable in the context of where they have trended in 2025-2026, and they were naturally exaggerated based on the magnitude of the beat rather than the absolute numbers in recent years. The mix is still mediocre at best in goods (+41K) and the manufacturing subset (+16K MoM, +23K YoY).

• The Household Survey data translates into the 4.1% unemployment rate. It is always worth a look at the numerator and denominator in the Household Survey. We see an increase of +115K unemployed for a total of 7,031K and a 4.1% unemployment rate (7,031K unemployed/169,777K labor force). The total employed rose by 569K to 162.746 million. The labor force rose by 683K. The participation rate of 61.6% ticked higher from July (61.4%) but is down from 62.3% In Aug 2025.

The chart updates the monthly deltas in payrolls from March 2022, which means it starts with the end of ZIRP and then into the journey across tightening and eventually the easing cycle. We also flag the median payroll deltas from Jan 2009 of 163K (includes the wave of revisions in older data).

We started the median timeline measurement on Jan 2009 to include the financial crisis and ZIRP period along with the carnage that came with bank meltdowns and assorted bailouts. 2009 also includes the unravelling of various bellwether industrials such as autos and the Chapter 11 spike in the automotive chain (GM, Chrysler and a wave of suppliers).

The 162K payroll adds delivered in August 2026 was triple the forecast consensus and shocked many, but the gross job adds need a frame of reference. It is worth keeping that number in context vs. what unfolded in the tightening cycle and aftereffects of the 2022 oil spike which was triggered by the Russian invasion of Ukraine (that economic trigger point gets almost no airtime from Team Trump on inflation history).

That 162K is slightly below the longer-term median of 163K that we cite even if Aug 2026 payroll additions handily beat expectations and look great by that measuring stick. The 6 negative payroll delta months since Jan 2025 happen to be the only negative months in the timeline presented and all occurred during Trump 2.0.

The negative months are clustered more in mid to late 2025. Only 1 payroll delta since Jan 2025 beats the median (March 2026), but that is unlikely to show up in the Hassett marketing brochure. We see quite a few payroll deltas over 200K with 17 months in total from March 2022 to Dec 2024. We see 8 months above 300K in that time frame. That is the adjective-free scoreboard.

We break out the numbers in more detail below. The summary is that a material beat of consensus takes some heat off the FOMC this month on tightening and especially in the context of the unemployment rate of 4.1% (that would be full employment in any other cycle).

On the other hand, the 3.1% wage growth is underwater vs. inflation, and the payroll additions are still dominated by low multiplier occupation lines such as “Health Care and Social Assistance” and “Leisure and Hospitality.” You can go line-by-line in Table B-1 for the sequential MoM payroll deltas and likewise for the YoY deltas (we do that exercise each month), and the facts are that the granular picture pushes back on the “Golden Year” label. It is more in the base metal family. That is ok since base metals are solid. The marketing of the payroll performance tends to be more gaseous.

The above chart plots the running job adds/declines since Jan 2009 against the unemployment rate, which at 4.1% remains a full employment level even if the Household Survey data (addressed in a separate chart below) is showing material contraction in the labor force denominator.

In the chart, we isolate the worst months of the COVID dislocations in the box for better visuals to capture the other periods. The 4.1% U-3 is below the long-term median from Jan 2009 of 4.9% (5.0% median from 1994).

Payroll counts have been struggling somewhat in relative terms in 2025-2026, but history is very kind to 4.1%. The U-3 is a different exercise than “counting employed heads” in narrow context. As we cover below, the total of employed is down by -624K YoY.

If the 2025-2026 frame of reference for payroll additions is 2024 (not a good jobs year) then the 2025-2026 numbers are acceptable (not great). If we compare 2025-2026 monthly adds to the 2022-2023 period, the current job add run rates are weak.

The above chart details the monthly data dance between the Household Survey Data and the Establishment Survey. The unemployment rate of 4.1% as always has a few moving parts with the total of employed, total unemployed, and civilian labor force all lower YoY.

For those of us who work off the “total paycheck rule” the paycheck count translates into purchasing power – or simply the ability to service growing debt burdens. So this backdrop is not a good one from that angle. “Low hire + low fire” is still not driving a much larger base of paychecks that can move PCE growth materially higher. It is also not a contraction story on the consumer side with negative PCE in fact being quite rare.

The usual high-level focal point around the “body count” metrics is total labor force and participation rates and related deltas. The participation rate is 61.6%, down from 62.3% YoY but up from 61.4% sequentially from July. A growing population and basic demographics should translate into higher total GDP (not necessarily higher growth), higher payrolls in a services-intensive economy, higher production volumes on rising demand (the trick is whether that gets filled by domestic production or imports), and higher total trade flows.

Some weakness in payroll trends in 2025-2026 can be tied to local distinctive factors such as local education seasonal patterns, but we are seeing YoY declines in local education even with the MoM increase. We will look at more occupation lines separately below, but the +62K bounce MoM in “Leisure and Hospitality” was a big help. That included +131K YoY.

The theme of “low hire, low fire” is still playing out but against a backdrop of weak affordability as covered in other commentaries. Wage growth has been lagging inflation (or slightly over/under inflation) by various metrics. The latest wage growth rate of +3.1% was down from +3.2% in July in the BLS payroll release. That is below headline PCE inflation (3.7%) and headline CPI (3.4%) for July. That is negative real wage growth, and that is a tough comparison for midterm elections. We get fresh August CPI and PPI data this coming week.

With its 1-month lag, the JOLTs release added some mixed news ahead of the August jobs numbers with lower hires set against modestly higher openings. For July, hires were down in Manufacturing (-45K) but higher in Construction (+47K) while job openings were notably higher in Manufacturing including +76K in Durable Goods.

Layoffs and discharges were lower in total with a minimal decline in Manufacturing. “Openings” are good in what they reflect about employer plans, but the actual hires might need some tumblers to fall into place including FOMC plans, oil prices, and tariff behavior. Those are all moving parts right now with some potentially moving more than others.

We detail payroll deltas in the “Goods” bucket across Construction, Durables, and Nondurables for a reality check on sequential MoM deltas and YoY. The exercise is in part a check on how targeted tariffs translated into jobs (or not).

The headline +162K in payroll adds crushed expectations as detailed earlier. However, that outperformance was still slightly below the median since Jan 2009 (+163K) and well below 2022-2023 deltas. Services dominated with +86K in Aug with Government at +35K, comprising +121K of the +162K. The remaining +41K was in Goods with more than half (+22K) in Construction, which has been a winner MoM and YoY on the AI ecosystem boom. We include some subsector lines in construction detailing material moves higher (Nonresidential) and some lower (Residential).

A key point to consider is any weakness in the blank check tariff sales pitch where tariffs alone bring their own reward. The stated goal of reshoring and attracting capital investment back to the US is sometimes complicated by the reality that a project needs to be “economically viable.” Reduced price competition can also lead to domestic producers simply raising prices. Bricks and mortar commitments whether greenfield or brownfield have to consider that the “next guy” could radically overhaul trade policies when such reshoring or new capacity can take years to complete.

Services payroll totaled 114.2 million, dwarfing Goods at a 21.6 million headcount. Within Goods, we see Construction at 8.4 million in total payroll and Manufacturing at 12.6 million. Manufacturing includes Durables at 7.9 million and Nondurables at 4.7 million. We do not address Mining and Logging here with its headcount of only 609K heads (“mining” includes E&P, coal, metals).

Durables captures attention given the multiplier effects from materials and supplier chain tiers into finished goods that can also bring more headcount in services across freight and logistics, retail (dealers) and financial services (wholesale/retail financing, insurance, etc.).

The table is self-explanatory (what’s up or down MoM and YoY), but we highlight the material difference between Durables over the past year at +72K vs. Nondurables at -49K.

The fact that Motor Vehicles jobs (963K total payroll Aug 2026) contracted YoY might surprise, and the latest autos and parts total payroll number is also below the end of 2024. Furniture is a smaller line (331K) that has gained a lot of tariff attention, and that was lower YoY and below year end 2024. Even if higher YoY, Machinery (1.09 million) is below Dec 2024.

In Nondurables, the tariffs on such line items as Apparel have not translated into more jobs any more than textiles. These are two areas where low-cost labor is the main story line (notably in Asia). The Apparel payrolls decreased while prices rose. Food Manufacturing stands out as a setback at -20.4K YoY. Food prices are rising with the potential for more of the same ahead with a diesel crisis underway and labor costs remaining a wildcard in the agricultural space with the deportation waves. It is never simple even if some pretend it is.

The moving parts of the Services payrolls tend to dominate the headline deltas with “Health Care and Social Assistance” and “Leisure and Hospitality” the more active lines each month. The health care lines are diverse by subsector as detailed in the table. The social assistance line is heavily about demographics. The growth in headcount mirrors the massive role in the US economy with health care related industries totaling around 18% of GDP. There are parts of the health care growth story that can have huge multiplier effects across the supplier base and others that do not but instead are more personnel intensive.

For Hospitality and Leisure, “Food and Accommodation” dominates with +185.1K YoY. Within that broader mix, the “Food Services and Drinking Places” line (12.4 million total payroll) was +59.2K on the month and +181.8K YoY. Within the broader Leisure line items, we see “Arts, entertainment and recreation” lower by -6.3K MoM and -53.8K YoY on a total payroll base of 2.65 million.

Among notable declines in Services lines was “Information” at -23K MoM and -115K YoY. Financial activities was down -11K MoM and -99K YoY. Within the Financial bucket, Insurance carriers and related activities were down by -6.3K MoM and -75.4K YoY.

The jobs deltas saw the U-3 slightly above the 4.1% line (4.14%). The U-6 posted a favorable decline in August to 7.7% from 7.9%. That compares favorably to the 8.1% of August 2025 for a -0.4 YoY decline.

As a reminder, the U-6 metric is defined with the numerator as “total unemployed + persons marginally attached to the labor force + total employed part time for economic reasons.” The denominator is “civilian labor force + workers marginally attached to the labor force.”

As we covered earlier in the YoY deltas and the Household Survey data, the civilian labor force is down sharply YoY with the category of “not in labor force” spiking during 2026 but declining sequentially in August by -551K to 105.6 million from 106.2 million in July. “Not in labor force” can be as simple as someone who wants a job but is not actively looking. The turmoil in the tech services headcounts of late and downsizing of government departments are easy ways to envision why this trend has been unfolding in 2026.

The U-6 is the structural underemployment metric that is always useful to watch. To start 2025, the U-6 rose sharply in Feb 2025 to 8.0% from 7.5% in Jan 2025. The U-6 jumped to 8.7% in Nov 2025 from 8.1% in Sept 2025.

The current 7.7% marks a decline from 8.1% in May and 8.2% in April. That is good news. However, the current U-6 remains well above the 6% handles seen in spring of 2023. The U-6 is still below the median from 1994 of +9.3%, which notably includes the post-crisis shock and the longest recession since the Great Depression.

The time series above updates the U-6 minus U-3 differential as a measure of relative employment quality and to flag risks of major dislocations in large swaths of the economy (think oil patch collapse in the late 1980s, tech bubble imploding into a weak 2001-2003, and financial services and automotive meltdowns in 2009).

The current 3.6% differential is below the long-term median of 4.0%. The job ranks are still vulnerable now with stubbornly uncertain and erratic developments in Iran and apparent interest from Trump to make more reckless trade attacks including threatening this week to end all trade with all trade partners posting a surplus. That was crazier than usual (even for Trump) since that target list includes all the largest trading partners and a material majority of the Top 20. Such a radical action would in theory generate some major problems in planning payrolls and would lead to mass layoffs.

The anxiety around where the UST curve, energy costs, and raw materials go from here remains high in terms of the impact on working capital cost inputs and employer decisions. The feedstock costs have been ugly until the recent adjustments in more than just oil. Iran peace promises are often heard as settled, but “it ain’t over ‘til it’s over” clearly applies. The housing sector remains quite vulnerable to any UST steepening risk. The recent return to exchanging fire in the Strait continues the on-again/off-again pattern.

The above chart updates total payroll vs. the unemployment rate. The trend needle has not moved much in 2026 and has been in a narrow range. More bodies with more paychecks are always a good thing. Meanwhile, the Household Survey data pushes back on the Establishment Survey with the direction of total employed heads.

The trick from here is how the consumer deploys their paychecks and whether the zero-sum realities of household budgets undercut spending. The PCE line in the GDP accounts is a critical driver of growth and negative real wage growth is not a tailwind. In reality, poor household earnings growth can be a leading indicator for spending or wage demand pressure.

PCE growth represents 68% of GDP, so the improvement in 2Q26 GDP after a very weak 1Q26 GDP offered some tangible cyclical relief (see 2Q26 GDP: Good Underlying Numbers Despite Headline 1.5% 7-30-26, GDP 1Q26 Final: PCE Growth Plunge 6-25-26). We also saw constructive PCE income and outlays numbers in the July PCE release with income outpacing consumption (see PCE July 2026: Mixed Consumption, Stubborn Inflation 8-26-26). Savings rates finally ticked higher, but questions remain on when (and whether) the consumer will get more defensive.

The above chart updates the total payroll numbers vs. job openings. Management teams have a lot of moving parts to factor into planning whether quantitative or qualitative before they fill the openings. The potential for a wave of new tariffs ahead with the USMCA demise (or replacement) and the escalating clash with Canada and potentially the EU are not incentives for employers to rush out and fill the job openings or to launch more initiatives where the economic inputs are in a state of flux.

The domestic political stress is likely to climb from here. The US is in an election year where political risk is rising to levels that the US has not seen since 1860. Election interference worries and the insane idea of having the incredibly inefficient Postal Service being a White House enforcement entity to undermine mail-in voting is getting into uncharted territory (in the US at least) even if Asia and European dictatorships have some templates across history.

Not enough people have looked at how complicated the Executive Order was in terms of its demands on the USPS even if the whole idea is brazenly unconstitutional and conflicts with the “Elections Clause” of the constitution (see The US as an Aspiring Emerging Market: Fiscal SNAFU, Political FUBAR 4-6-26).

The final IEEPA decision from SCOTUS came in against Trump, but he was prepared to start slapping on tariffs under Section 122, 232, and 301. More recently, Trump has unearthed a clause within the Smoot Hawley tariff legislation of 1930 using Section 338. When in doubt, a natural plan is to go to the Hoover playbook (that worked so well). Section 338 is a return to the blank check tariff policies of IEEPA with zero Congressional checks on the White House.

The near-term trade crisis is Canada with Trump’s Homeric ego a critical factor. The trade flows have been looked at in many past commentaries and the risks are obvious at this point (see Trade Deficits: The Moving Parts and Macro Goals Matter Most 6-24-26, Meanwhile…Back in Economics and Tariffs 3-2-26, US Trade with the World: Import-Export Mix 2-25-26). The US has a goods trade surplus with Canada ex-oil. Canada is also the leading export market for almost 3 dozen US states. Those states, including every central and northern swing state, might have something to say about the game plan reflected in midterm elections.

CPI vs. unemployment rate is plotted above. The big worry back in March as Iran escalated was fear of stagflation – something not seen since the 1980-1982 double dip under Volcker (except a brief touch of worry in fall 1990). That has subsided in recent weeks despite the stubbornly high inflation numbers. It would take a massive setback in US-Iran escalation risks to change the status quo, but the refined product crisis has recently eclipsed discussion of the Strait. At some point, China will ramp up buying oil on a grand scale again. This oil and refined product crisis is proving to have some legs.

The overall economic impact of tariffs has been far less than feared given the reality that most trade partners backed down in 2025. That said, the trade war with Canada in 2026 could lead to more disarray. A worsening backdrop will be tied to how key Provinces react and whether they hold their current steady-as-she-goes plans (i.e., no export taxes on oil or potash, etc. by Alberta and Saskatchewan).

The backdrop could still change in 2026 with the latest wave of Section 301 and Smoot Hawley 338 attacks on supplier chains and trading partners. There is always the chance that Trump might push Mexico too far and the same with the EU, where US relations are at a low. The worst case scenario in trade would be trade wars with the top 3 trading partners (EU, Canada, Mexico). Trump would keep on making money, but employers would need to revisit hiring and staffing plans.

See also:

Remembering Gloria Steinem 9-3-26

Market Commentary: Asset Returns 8-31-26

Market Commentary: The Curve 8-30-26

PCE July 2026: Mixed Consumption, Stubborn Inflation 8-26-26

2Q26 GDP: 2nd Estimate 8-26-26

New Home Sales July 2026 8-25-26

Market Commentary: The Curve 8-24-26

US-Canada: Benches Ready to Clear 8-22-26

US-Canada Tariffs: Protection Racket 8-19-26

Housing Starts July 2026: Grim Numbers 8-18-26

• Declining volumes ran alongside a slight uptick in inventories and a sequential decline in median home prices to below the $400K line to $393.8K vs. $403.1K in June 2026 and $397.3K in July 2025. That is a rare decline below $400K over the past 4 years.

• The 607K SAAR units for new home sales is the 2^nd lowest over the past year with only Jan 2026 lower at 576K.

• The critical South region (63% of sales) was down -13.0% MoM and -5.2% YoY while the #2 region in the West (23% of sales) was up by +6.2% MoM and posted +2.2% YoY. The smaller Midwest market (7% of sales) was down sharply by -42.7% MoM and -50.6% YoY. The Northeast (7% of sales) rose by +30.3% MoM and +95.5% YoY.

• The homebuilders will now face the added challenge of a wide array of tariffs on material costs to go with high mortgage rates. Whether it be tariffs on supplies from Canada or latitude provided domestic suppliers to raise prices with less Canadian competition (and soon Mexican?), life will stay challenging for builder margins.

The above chart updates the new single family home sales series from 1963, and the current 607K (SAAR) is below the long-term median (636K) despite the more favorable demographics and pent-up demand in this cycle. That gets back into the affordability debate around both price and monthly payment pressures as well as the tight supply of entry level and starter homes. The current UST curve and cost pressures from tariffs will not help there.

The median of 989K in the housing boom/bust cycle from 2001-2009 is 63% higher than current volumes. As we look back to the peak of the housing bubble, we see 1389K in July 2005 at over 2x the July 2026 volume. The COVID panic buying and relocation spree in Aug 2020 saw sales of 1036K in a wild period for new home sales and home starts in a ZIRP market with very low mortgage rates. The market today is facing much higher prices since COVID and 30Y mortgage rates that ended at 6.74% this week (Mortgage News Daily survey).

The above chart plots the share of total home sales (new + existing) that were captured by the “new home” builders. We see the share is now at 13.0% vs. the long-term median of 11.7%. When inventory is scarce, the right home at the right price wins. The challenge overall for new home sales has been mixed for builders by region.

Major homebuilders generally continue to report gross margin compression in 2026 and guide to similar expectations for the year. We see lower prices from the builders even if that comes with the asterisk of product tier and geographic mix.

The market edge for closing a sale favors builders vs. existing home sales (note: existing is still the vast majority of sales volume). Homebuilders have the ability to use incentives and financing support (see Existing Home Sales July 2026: Slow Row 8-11-26), and the homebuilder can tailor packages to close sales.

Given the mortgage rate headwinds undermining volume in the existing home sales market whether “golden handcuffs” or a challenging monthly payment bar to clear for many, the shortage of existing housing inventory at economic all-in costs (price and mortgage rates) has been a recurring drag on that side of the home sales tally.

In new home sales, the gap between the expectations of the seller and buyer is easier to bridge through the incentive programs or the ability to offer variations in home design and specs to make a transaction work.

The new home sales volumes are softer with total new homes down by -6.3% YoY. Prices posted this month dipped back below the $400K line. The 10Y UST is the key benchmark for the direction of 30Y mortgages and that has been moving in the wrong direction YTD despite some relief this week (see Market Commentary: The Curve 8-24-26). The hot headline today is a potential deal between Oman and Iran to get a plan in place on the Strait. We see WTI off by -$2.65 per bbl and the 10Y UST -8 bps lower.

The oil wildcard could potentially ease pressure on the longer end of the curve, but that has been erratic around policy actions, the Iran vs. Trump dynamics, and on-off progress in striking a deal on the Strait of Hormuz. Trump needed to get into the headlines on the Strait today with these other headlines, so he spoke about mines now being cleared and warning Iran not to plant any more.

The CPI, PCE and PPI inflation metrics have been grim despite the inflation easing in June and July showing some mixed progress (we get July PCE inflation this week). May saw headline numbers over 4%, but June-July are seeing comparative energy relief sequentially even if YoY numbers remain ugly for energy (see PPI July: When Lower is Better but Still Bad 8-13-26, CPI July 2026: Slight Breeze, No Chill 8-12-26, June 2026 PCE: Inflation, Income, and Outlays 7-30-26).

The median home price time series tells a simple story that prices had been under modest pressure after a period of record highs and a long stretch over the $400K threshold with a few dips below the $400K line. We had a dip below that threshold in June before being revised this month to $403.1K. July shows another move below $400K at $393.8K.

The move lower can have a lot of contributing factors from mix to region, but a decline is consistent with the major builders reporting. The South’s lower ASP mix can factor in as a lower ASP region, but the “South” by itself has a very wide range as well. The South posted a -13.0% sequential MoM decrease in volumes (-5.2% YoY) in July while the West was higher by +6.2% MoM (+2.2% YoY).

The above chart gives a different visual angle on the median new home sales prices from early 2022. That is a lot of $400K handles with some sub-$400K outliers. The $393.8K in July 2026 is the lowest in the mix.

The price metrics can shift with regional mix as well as home price tiers and related supply issues. The affordability question is still more intertwined with the monthly payment pressures from mortgages. It is about more than price. Those monthly payments are very sensitive to mortgage rates more than home price moves.

The time series above updates the new single family home sales across the cycles since 1973 for the #1 and #2 regions of the South and the West. The 383K for the South is around 63% of the total of all single-family new home sales (SAAR) and marks a sequential decline of -13.0% from June 2026 and is down by -5.2% YoY.

The West at 138K is 23% of the total. For the month, the West was higher by +6.2% sequentially and by +2.2% YoY. The South is running ahead of the long-term median of 314K while the West is materially below the median of 173K.

The timeline for new home sales for the smaller Midwest and much smaller Northeast market is detailed above. The Midwest (7% of July total) was -42.7% sequentially and -50.6% YoY. The Northeast market (7% of total) was +30.3% sequentially and +95.5% YoY. Both of the two smaller regions showed dramatic variance this month.

See also:

Market Commentary: The Curve 8-24-26

Market Commentary Asset Returns 8-23-26

US-Canada: Benches Ready to Clear 8-22-26

US-Canada Tariffs: Protection Racket 8-19-26

Housing Starts July 2026: Grim Numbers 8-18-26

PPI July: When Lower is Better but Still Bad 8-13-26

CPI July 2026: Slight Breeze, No Chill 8-12-26

The ChatGPT Living Wage Test 8-11-26

Existing Home Sales July 2026: Slow Row 8-11-26

• Mortgage rate pressure and some cyclical nerves just delivered a weak set of housing starts for July. The delta for total starts was -12.4% MoM and -13.5% YoY with single family at -9.9% MoM and -15.7% YoY. Cost pressures and uncertain turnover are keeping builders on the defensive.

• Permit trends were favorable in comparison just by being positive growth, so there is a debate to have on when activity could step back up if oil takes a favorable turn and pushes the 10Y UST lower (and thus 30Y mortgage rates). The direction of the curve since Iran has been a headwind for residential (see Market Commentary: The Curve 8-17-26).

• Multifamily also took a sequential beatdown at -15.6% from June and -7.1% YoY but permits also eased fear of more dire scenarios (+9.1% MoM, +6.3% YoY).

The above chart offers a clear reminder of the wild single family residential construction cycles across the decades. With favorable demographics for housing demand, the current starts run rate of 808K (vs. 897K in June) is still well below the long-term median of 1007K and below all the timeline medians posted above.

The current backdrop includes mortgage rate pressures undermining the affordability of monthly payments with the Mortgage News Daily 30Y survey most recently closing at 6.75%. Mortgage rates are not likely to get much better from here with steepening the theme of the markets and rising 10Y and multi-decade headline highs (since 2007) for 30Y UST rates.

The Iran War and Strait of Hormuz crisis is threatening UST bear steepening even if a bull flattening can be in the prayers of those hoping for peace and an oil crash. The steepening and negligible odds of easing come after seeing mortgage rates flirt very briefly with crossing below the 6.0% line in Feb 2026, just before the Iran War. That is one more missed opportunity that fell prey to “Geopolitics Amateur Hour” that used an inner circle of real estate “friends and family” and not regional experts and experienced diplomats.

The above chart plots total permits and total starts and single family starts and permits on a Not Seasonally Adjusted (NSA) basis. NSA is viewed as closer to what is going on in the trenches without the SAAR model assumptions.

For July 2026, we see NSA total permits +5.5% higher YoY. Single family permits were higher by +1.1% YoY. Total permits were -0.5% lower MoM with single family permits lower by -3.9% MoM.

For total starts and single family starts on an NSA basis, we see total starts down by -14.1% YoY and down by -16.7% MoM. For single family NSA starts, the YoY deltas were lower by -16.7% while MoM was down by -15.6%.

The above plots the single family starts by region (NSA). On a MoM basis, the critical South region (totals 50.6% of total NSA starts and over 59.9% of single family starts) was down in single family by -12.5% MoM and down by -17.1% YoY.

The West as the #2 single family market (16% of total) was down by -24.2% MoM. The Midwest region MoM in single family was -10.2% with the small Northeast market at -29.8% MoM. The YoY NSA starts were all lower.

The above chart updates running multifamily starts. At +421K (SAAR) for July 2026, multifamily starts decreased by -15.6% MoM from June after a massive rise in June over May. The 421K is still substantially above the +282K in May and below the 494K of April. The decline in May was an outlier.

The 421K for July is well above the long-term median of 339K but below the highest timeline median from Jan 1960 to Dec 1972 of 487K. That 1960-1972 period was when the urbanization boom was ongoing.

The 1960s was a period of explosive growth for multifamily with the back end of the baby boom, the postwar rise of urbanization, and the high racial migration from the South to the North all part of the multifamily tailwinds. Immigration also played an important role.

The above chart updates Multifamily permits (SAAR). The 490K in July 2026 multifamily permits rose by +9.1% MoM and was up by +6.3% YoY.

The bottom line on home starts as we move further into the peak selling season is that 2026 was already shaping up as a mediocre year at best for homebuilders. Now the numbers are trending even worse with mortgage rates under a cloud and builders overall growing defensive in working capital management on higher interest rates and pressure on costs.

See also:

Industrial Production July 2026: Resilient, Steady, Hopeful 8-18-26

Market Commentary: The Curve 8-17-26

Market Commentary: Asset Returns 8-16-26

PPI July: When Lower is Better but Still Bad 8-13-26

CPI July 2026: Slight Breeze, No Chill 8-12-26

The ChatGPT Living Wage Test 8-11-26

Existing Home Sales July 2026: Slow Row 8-11-26

Payroll Deltas July: Mixed Bag, Mediocre Numbers 8-9-26

The Curve: Steeper, Inflation Anxiety Remains 8-2-26

Employment Cost Index June 2026: Inflation > Wage Growth 7-31-26

June 2026 PCE: Inflation, Income, and Outlays 7-30-26

2Q26 GDP: Good Underlying Numbers Despite Headline 1.5% 7-30-26

• Industrial production grew again in July with a modest +0.2% MoM and +1.1% YoY with business equipment up impressively YoY at +6.6%. The Materials market group was higher (+1.0%), but Consumer Goods was off by -1.8% as Autos and Appliances/Furniture both weakened. The non-consumer categories carried the day on the top line.

• Manufacturing capacity utilization ticked very slightly higher MoM to 76.0%, which is well below the 1972-2025 average of 78.1%. Durables ticked higher on the back of Metals (primary and fabricated), Machinery, and Aerospace/Transportation but with Motor Vehicles was lower. Nondurables dipped MoM.

• Basic multiplier effects come into play for industrial production with the “AI World” helping to solidify a range of industrial metrics during July even as we see other major economic drivers such as housing starts showing very negative trends (released on same day).

• The materials, components, and finished goods demand that tie into the AI ecosystem drive a lot of economic activity independent of the adverse interest rate moves, but the consumer sector will still need to be the main driver of GDP growth into late 2026 and 2027.

The above chart and text that follows is somewhat of a replay of the history of the industrial production cycles across time from 1967 through today. We have covered much of this in the past, but we roll the historical recap forward for convenience below. We get new readers and students all the time, so we use it as a mini history lesson. For those used to this history, I added some new angles in this version but otherwise you can skip to the July IP and Capacity Utilization charts further below in the commentary.

Here’s a topical summary of the history sections:

A look at the top-down utilization numbers…

A brief cyclical lookback on replay…

Bring on the tech boom and excess…

The credit crisis arrived in the summer of 2007 and peaked in late 2008…

COVID, ZIRP, and a license to print risk…

Time for the new age transition to AI plus some old school crises…

As an “old guy” who covered such industries as autos and steel credits back in the 1980s (and worked on a few audits of resources and energy companies), we have seen plenty of cyclical stress and secular shifts. I came of working age in the first stagflation wave and oil spikes of the 70s and early 1980s, and slices of the “old” are still evident these days. Cyclical change and secular trends always get mixed in, and the evolution, restructuring, or collapse of industries are not new.

The manufacturing sector is today wrestling with tariff waves in a world with global supplier chains. Unwinding supplier chains built over decades using economic reasoning (comparative advantage, serving multiple global end markets, labor efficiency etc.) cannot be unwound or erase. Adjustment challenges are exacerbated when the decisions are erratic (as today), reversed in part or whole on an ad hoc basis, and/or at times based on rationales that often lack facts (e.g., who write the check for tariffs) or a conceptual foundation (is a trade deficit a subsidy or a de facto check written to another country?).

Oil spikes are not new. The US was slammed by them in the 4Q73 to 1Q25 recession and again in 1979 on the way into the 1980-1982 double dip that saw Volcker’s “mother of all tightening cycles.” Rapid increases in oil prices usually translate into yield curve punishment on the long end and occasionally recessions as seen in 4Q73-1Q25 recession, again in the Volcker double dip, and in a brief downturn starting in the summer of 1990 on the way into that Middle East oil adventure after the Aug 1990 invasion of Kuwait by Iraq (see Business Cycles: The Recession Dating Game 10-10-22).

A look at the top-down production and utilization numbers…

For July 2026, the “business equipment” line of industrial production is doing quite well at +6.6% YoY with “information processing” up by +8.9%. Consumer durables are down -1.6% YoY with the exception of the “home electronics” line at+9.3% (Table 1 of the release). Defense and space equipment is up by +6.8%, but construction supplies only +2.4%. Within Industry groups, “computer and electronics” was +9.9% YoY. Overall, durables manufacturing in industrial production was +3.9% and nondurables posted -1.6%.

The capacity utilization trends are covered in the tables further below, but it is always good to keep in mind that there are two moving parts: capacity growth and the rate of utilization. Over/under expansion relative to demand can shape pricing power (e.g. semiconductors on a global scale).

The current 76.0% for total manufacturing utilization is below the long-term median of 78.2% and slightly below the post-COVID median of 76.2%. The industrial production and capacity utilization numbers are among many metrics that take the label of “greatest economy in history” off the table. Whether GDP growth or payroll trends, the current economy is a bottom quartile economy when the growth of the 1980s and 1990s are factored in (see Presidential GDP Dance Off: Clinton vs. Trump 7-27-24, Presidential GDP Dance Off: Reagan vs. Trump 7-27-24).

The wildcard for this current cycle is the scale of the fixed investment that is now ramping up around the AI ecosystem. The multiplier effects cut across the full array of products and services and extend across many major trade partners with Taiwan at the top of the list (see Taiwan: Stakes are High, US Awareness is Low 5-17-26, US-Taiwan Trade: Risks Behind the Curtain 2-1-26). We would hope that someone in the White House would realize that the trade deficit with Taiwan is proof that such metrics can reflect strength (just look at the stock market and AI ecosystem valuations). Everyone is afraid to tell Trump. He might learn something.

The consumer sector and PCE growth have been unimpressive in 2026 with weakness in 1Q26 and a recovery in 2Q26, but fixed investment is now soaring (see 2Q26 GDP: Good Underlying Numbers Despite Headline 1.5% 7-30-26, GDP 1Q26 Final: PCE Growth Plunge 6-25-26). If you like comparing numbers (not a Washington thing) as opposed to spewing partisan adjectives, Trump 1.0 did not even frame up all that well vs. Carter and Biden – let alone the 1980s and 1990s (Gut Checking Trump GDP Record 3-5-25, Trump’s “Greatest Economy in History”: Not Even Close 3-5-25).

Trump 2.0 is off to a slow start on GDP growth (annual GDP growth in 2025 was well below 2024) and payroll additions pale in comparison with the earlier glory years of the 80s under Reagan and the 90s under Clinton and even Biden. That clear conclusion requires more numbers and less adjectives than we hear today.

A brief cyclical lookback on replay…

The chart at the top shows the material swings across expansion booms and busts. That includes the aftermath of some highly damaging oil spikes that brought on cyclical weakness and later saw capacity utilization plunge. Gasoline and home heating bills can damage household cash flow subject to the consumer financial profile. There were a lot more structural changes underway in those cycles than just oil and gas price pressures.

The pace of industry restructuring was a major factor in the 1980-1982 double dip as well as during the recession of late 1973 to early 1975. The Arab Oil Embargo set off chain reactions that turned the post-1973 period into an ebb-and-flow of macro nightmares for inflation and the consumer. Currency trends and labor costs were going through major changes across many years into the 1980s.

The May 1975 low of 71.6% followed the first bout of severe stagflation that unfolded after the Arab Oil Embargo. The 1980-1982 double dip recession came after the 1979 inflation spike took off with the Iranian oil crisis. The themes from Middle East wars or OPEC clashes (Iran vs. Iraq in the 1980s, Iraq vs. Kuwait/US in 1990) are being revisited today. There is room for the conflict to get much worse with a wide range of potential geopolitical outcomes.

Capacity utilization saw a 68.7% low in Dec 1982 as the economy was just coming off the recession trough. The first Gulf War came after the August 1990 invasion of Kuwait with capacity utilization hitting a low in March 1991 at 77.2%, which is above where capacity utilization stands now in 2026. That takes some of the edge off the “greatest economy in history” hype.

Bring on the tech boom and excess…

The age of tech and credit excess in the late 1990s brought some new swoons with 71.8% in Nov 2001 after the TMT meltdown and HY default wave rolled in. The Utilities and Power sectors and Telecom capex all took a beating in that time frame.

We recently saw a market commentary comparing and contrasting the tech bubble of the 1999-2002 swing with today’s valuations in the AI ecosystem. That writer had referred to the tech bubble of 1999 as NOT a case of balance sheet pressures as his theory was simply about valuation metrics. We are not sure which tech bubble he was referring to during 1999, but he missed 2 of the 3 letters in “TMT”. He was using internet stocks as his focus. The internet stock bubble was very different from the debt-fueled telecom (T) and media (M) credit cycle and market implosion.

The telecom-related, debt-funded capex and balance sheet stress of 2000-2002 was ugly with many cash flow bleeders heading to Chapter 11 and distressed debt restructuring that also brought industry consolidation. The wave of fraud (Enron, WorldCom, and more) also hit confidence levels. The credit stress was much higher in 2001 and the counterparty credit quality was much worse in 2000-2002 than what we see today. Private credit gets tossed around but 2000-2002 was an underwriting quality tragedy. That sets a high bar for “worst practices.”

The current fear of revisiting credit stress ties into the worry that AI models (revenue, cash flow) will fail to be realized. That does not change the fact that 2026-2027 will remain highly dependent on raising much more debt to “finish the job” that is being built into revenue growth and earnings models. That is anything but assured. If the debt markets balk, the stock valuations will see a lot of pain.

The credit crisis arrived in the summer of 2007 and peaked in late 2008…

The next crisis in the manufacturing sector plotted in the above chart came with the post-credit crisis low of 63.4% at the recession trough in June 2009. Mortgages and derivative excess caused a very real systemic panic and deep risk aversion from the Lehman Sept 2008 period and well into 2009. Banks and brokers collapsed and the whole Ghostbuster scenario (“cats and dogs living together”) started to play out.

Fears of cascading counterparty collapses rose with the bank system crisis as did worries around mass credit contraction hitting a broad swath of businesses. That in turn led to bailouts by the UST and protracted action by the Fed (see Wild Transition Year: The Chaos of 2007 11-1-22).

That period in late 2008 and into 2009 was famous for the bankruptcy and bailout of GM and Chrysler and how that reverberated across supplier chains from materials to components. TARP and late 2008 had already hooked up the “bailout infusion.” The credit contraction threat was very real, and the recovery in payrolls was slow to unfold with the consumer hammered by housing sector pain (Autos: War Stories & Anecdotes 9-22-23).

COVID, ZIRP, and a license to print risk…

COVID edged out the June 2009 utilization bottom with a record low of 62.6% in April 2020 and a wild 2-month recession. That pandemic period saw ZIRP, supply-demand imbalances and later the Russian invasion of Ukraine and ensuing oil spike that set off inflation and a tightening cycle that still did not trigger a 2022 recession. The Fed should get some credit for navigating that timeline even if late to the party.

In the context of manufacturing, ZIRP brought a wave of refinancing and extension of liabilities with low cost of capital encouraging investment and pent-up demand that rewarded rebounding inventories and capex. Consumer financing was cheap, and captive finance companies and the finance sector were ready and willing to lend.

Time for the new age transition to AI plus some old school crises…

As we detail below in the recession histories, the idea of what is low or high for capacity utilization in the context of corporate sector profitability is not as direct as one might think. Breakeven volumes, cost structures and pricing power are key drivers of profits.

The tariff excess as a core Trump policy only makes that unit cost analysis more complicated as we head into a new round of energy-related cost pressures in late 2026 and 2027. Material costs (notably petrochemicals, base metals), operating costs for companies, and consumer discretionary household cash flow headwinds make for a tricky set of moving parts shaped by erratic geopolitical decisions.

The AI upside as well as the fallout and related fears is a new variable in the mix that cuts across both the services and goods sectors. What AI will mean for productivity improvement vs. payroll contraction will be an ongoing test of theories. Even if AI proves true to the valuation promises and brings a “revolution” to the economy, many will also pay the price.

Revolution is a term often associated with a body count (even if jobs and not KIA). We have been getting a taste in the recent SaaS services panic (the “SaaS-pocalypse”). Those SaaS services markets consume a lot of goods and have a lot of employees. Total paychecks drive PCE, which is 68% of GDP. Massive payroll declines in services a real worry. Massive payroll decline in services is a legitimate concern.

The above table breaks out the high-level groupings with total industry and total manufacturing posting a mix of positive and negative variances in July 2026. We include a “delta column” on the right.

Mining and Utilities moved slightly higher for the month, and the rational expectation is that utilities will see more capacity added and more demand. The data center and power supply issue is more pressing and getting more political by the day in an area where there has been working class bipartisan anger around the side effects of such projects on power costs and water threats among other issues. That controversy has spread to Canada where we are seeing more legislative and regulatory battles around the data center capacity plans.

It may be local on a center-by-center basis, but it will find its way into an assessment of data center adequacy at some point for growth, AI ecosystem valuations, revenue models, pricing power, and cost structures. Any sense of faltering optimism around volumes (e.g. international restrictions on AI), pricing power, open source competition, regulatory backlash, or political risks (elections have consequences, etc.) could roil valuations.

Durables vs. Nondurables

We see Durables and Nondurables as the main events to track, and durables firmed up this month, ticking higher as a group. The durables sector is especially important with all of the supplier-to-OEM multiplier effects of tariffs and oil spikes. Some industries will lose and some will win.

The IEEPA SCOTUS setbacks and recent attempts by Trump to counterattack by “creatively” using existing tariff legislation (e.g., Section 338 from the 1930 Smoot Hawley Tariff Act) will face challenges. Trump always goes to “Plan B” and “Plan C” in his attempts to cut Congress out of any tariff decisions.

Trump is hanging his hat on Section 301 and has also invoked “forced labor” rules as a loophole. He recently threatened France with triple digit wine tariffs even without IEEPA. He seems to forget the EU works as a bloc. He also threatened Canada over wildfire smoke tariffs even as the USMCA is up for review. We will get some answers this week (potentially tomorrow) on the Canada 50% threats. The use of a Smoot Hawley 1930 provision is a Hail Mary that so far is unfolding subject to legal challenges.

Looking back from 2025 into early 2026, we see Manufacturing in a relatively narrow range and the same for Durables. Tariffs have not moved the production needle much so far, but that does not tell the profitability story on the tariff cost impact. Most people (outside the White House) know that buyers/importers write the check for the tariff, so that implies a higher breakeven volume or some offsetting actions in other costs or pricing.

Those tariff impacts will only play out over time across working capital cycles. Pricing decisions are more likely to come at a lag given the White House pressures, so there is a lot more to play out in 2026 earnings seasons and in company color ahead of FY 2027 when midterm results will be in hand.

The inflation story has turned into a negative variable for the macro picture in 2026. The “good news, bad news” aspect of a resilient industrial sector is that higher input costs can lead to the exercise of pricing power that flows into inflation. That beats the stagflation alternative but will keep life challenging for the FOMC and “Team Warsh” (if he can assemble a supportive voting team).

The Iran effects eased up in June but are now heading back in a negative direction in July and August. “War is hell” but it is also very unpredictable in how bad the macro effects can be. At the very least it is very bad for budget deficits that infect the UST curve.

The above table breaks out the details for the top 5 Durables lines and the two largest Nondurables lines. We include the capacity utilization deltas in the column on the right. We see more positive moves across all the major durables industries with 4 of 5 higher. “Motor Vehicles and Parts” moved lower. The two major Nondurables lines were both lower with declines in Chemicals and also lower in Food, Beverage and Tobacco.

The above table updates the capacity utilization history for expansions and recessions. As we routinely discuss, the ability of companies to generate solid profits at lower capacity utilization in today’s markets relative to past cycles is tied to both automation and the evolution of low-cost global supplier chains.

Low-cost supplier chains are getting severely undermined by tariffs and are now facing supply chain headwinds from the Iran War energy effects and the related supply-demand imbalances.

The “AI story” and what it all means for productivity and headcount will be a big part of the risk analysis ahead. The natural outcome will be less jobs in a service intensive economy such as the US. The irony is that the most immediate impact on jobs has been in tech, but that payroll retrenchment can easily spread.

The above chart details economic expansion and recession averages and lines them up by height as a frame of reference. We see the current level on the left at 76.0%. The fact that the current capacity utilization is below numerous recession averages posted on the right side of the chart also scoffs at the recurring “hottest country” rhetoric.

Trump has dialed that back a bit of late as more objective metrics work against his claims. That is notably the case with GDP growth rates, monthly payroll additions, higher interest rates, sliding housing volumes, and negative real wage growth among others. Calling it a “Golden Age” starts to cross into the realm of absurd (See links at bottom). Record stock markets are a positive and a reasonable bragging right, but the only Presidents since Nixon to see a record high stock market in their term was… all of them.

In the context of the tariff priorities and reshoring ambitions, the slack capacity implied by the chart in historical context underscores that the analysis is a lot more complicated than just “build more plants” and “keep tariffs high” to force reshoring. That is a story told on an industry-by-industry basis. It gets into themes around pricing power, cost structures and sourcing risks (tariffs, etc.). These days the topical questions revolve around “AI winners and losers” in productivity and the relative ability to adjust and engage in tariff cost mitigation strategies.

The multiplier effects are important, but the relocation of supplier chains and OEM assembly relocation and retooling is by definition very slow to unfold given intrinsic lag times, tooling equipment, and contracts in place (including collective bargaining and unions). It is a slow and painful process battling against the reality of automation and downsizing in some industries.

There is also the fact that the cost of relocation has risen with all the tariff effects for materials, components, and qualified labor. Autos are the main relocation stories, but that is generally going to be tied to existing infrastructure and not a strategy of all-new greenfield plants.

Trump vs. Canada

The issues around the USMCA review and a tariff spike levied on Canada could come to a head as soon as this week. Most remember Trump’s threat of “economic coercion” to make Canada the 51st state. That was in Jan 2025. That fat orange genie cannot get put back in the bottle.

The erratic USMCA and Canada negotiations that could unfold effectively make planning much more difficult if not impossible to do with clear economic certainty on trade rules. Trump’s signaling has been that he may terminate the USMCA entirely. That threat was regardless of any legal interpretations on whether his sole-actor decision is even legal.

Along with his recent Section 338 tariffs (Smoot Hawley) and threats of 50% tariffs on Canada, the potential for Canada to fight back is much more realistic this time around. That adds more drama to a policymaking framework that does not lack controversy in the best of times.

Anyone who has studied the Depression era economic collapse would have been hard pressed to predict that Trump would turn to a 1930 Act that has been pilloried by economists and historians for many decades (almost a century). This is now Trump’s “go to” legislation. His Congressional sycophants need to send out a search party for some body parts (brains, spines, and a few other missing anatomical needs)

See also:

Market Commentary: The Curve 8-17-26

Market Commentary: Asset Returns 8-16-26

PPI July: When Lower is Better but Still Bad 8-13-26

CPI July 2026: Slight Breeze, No Chill 8-12-26

The ChatGPT Living Wage Test 8-11-26

Existing Home Sales July 2026: Slow Row 8-11-26

Payroll Deltas July: Mixed Bag, Mediocre Numbers 8-9-26

The Curve: Steeper, Inflation Anxiety Remains 8-2-26

Employment Cost Index June 2026: Inflation > Wage Growth 7-31-26

June 2026 PCE: Inflation, Income, and Outlays 7-30-26

2Q26 GDP: Good Underlying Numbers Despite Headline 1.5% 7-30-26

• The market sees another round of similar trends with a slight change in volume at higher YoY prices. Mortgage rates and onerous refinancing costs and higher monthly payments remain a headwind.

• The sequential sales decrease of -1.7% MoM and +0.7% YoY came with a +2.0% YoY median price increase to $434.1K.

• Single family sales posted -1.9% MoM and +0.8% YoY with a +1.9% YoY median sales price rise to $440.3K (down sequentially MoM from $448.8K)

• The critical South region at 46% of total existing sales was flat YoY and declined by -3.1% sequentially as prices rose by +0.9% to $371.7K. All 4 regions saw higher YoY median prices with the West as always the highest at $622.2K and Midwest the lowest at $342.9K. The Northeast stood at $563.8K.

• With respect to UST curve risk, the odds from CME FedWatch as we go to print show the probability of a Fed easing by the Dec 2026 FOMC meeting at 21.5% for no action, 44.5% chance of 1 hike, 28.5% chance of 2 hikes, and 5.5% chance of 3 hikes. How that flows out the curve into the 10Y UST that drives 30Y mortgages has its own set of additional variables (see Market Commentary: The Curve 8-10-26, The Curve: Steeper, Inflation Anxiety Remains 8-2-26).

The above chart details existing home sales SAAR run rates by month from January 2023 to July 2026 with 4.06 million in July, down from 4.13 million in June. As a frame of reference, in 2022 the market was posting 6 million and 5 million handle sales volumes in the first half of that year.

The recent existing home sales totals look more like the late 2023 period when mortgages had peaked (see Existing Home Sales Dec 2023: Rerun of Multi-Decade Low 1-19-24). That makes sense given where current mortgage rates are now around 6.8%. The 30Y mortgage rate has moved within a 200 bps range since the Oct 2023 peak when Freddie Mac 30Y hit 7.8% and many mortgage offerings were near 8%.

The above chart shows the sales volume deltas by price tier for July 2026, and we see 4 of the 6 price tiers posting positive growth with the lowest price tiers posting declines. Note: We use “not seasonally adjusted data” for this chart.

For existing home sales, the monthly payment math is still unfavorable for those looking to cash out, move up, or simply relocate. Expectations for a bull flattener in the UST market that would translate into low to mid 5% mortgage rates have been crushed at this point for 2026 after major setbacks for that same scenario in 2025.

The curve has steepened and could steepen more if oil and tariffs and steady demand take inflation metrics higher. While the market is pricing in tightening risk as highlighted in the bullets above, the long end of the curve (notably the 10Y UST that drives mortgage rates) has ample room to steepen based on history even if the FOMC holds the line on the short end. A Fed easing scenario would require a macro backdrop that hits payrolls and homebuyer confidence to make the FOMC take such action.

The oil spike and price swings since Iran plus the documented inflation pressures in May and June will make life a challenge for Warsh. We get more CPI and PPI data this week (see June 2026 PCE: Inflation, Income, and Outlays 7-30-26, CPI June 2026: Eye of the Storm? 7-14-26).

The years of “repricing of the household basket” under Biden and again under Trump have made life a struggle for many and now we are looking at negative real wage growth (see Employment Cost Index June 2026: Inflation > Wage Growth 7-31-26).

We recently read a comment in HousingWire that highlighted slower home price growth vs. wages, but the funding costs (mortgages) and broader expense base that comes with home ownership and relocating undermines such a household budget assessment. The cash-in, cash-out analysis still says home ownership is mired in an affordability crisis in terms of the cost of ownership when considering financing and operating costs.

The above chart shows the geographic mix of volumes and details on price mix by region. The South is the main event in single family volumes whether new or existing at around 46% of total volumes.

For the bar chart, we break out the mix for each region by price tier. For example, the South shows almost 50% of its existing home sales volume in the $250K to $500K range and almost 18% of its sales in the $100K to $250K bucket.

The high cost of homes in the West (notably California) is clear enough just by glancing at the bar chart with over 17% at prices over $1 million. The second highest in the $1 million club is the Northeast at over 12%.

We see a major concentration across the regions in the $250K to $500K range although the $100K to $250K bracket for the Midwest stands at 27%. The West shows a high share of 28% in the $500 to $750K bracket, which again underscores how expensive the West region price tags remain in national context.

The map explains what states are in each Census region. There is a very wide range of home price profiles in the West and Midwest states.

Inventory for total existing homes ticked lower MoM to 1.54 million units for -1.9% MoM and -0.6% YoY. Current inventory is well below longer term medians including 2.08 million for the post-1998 median. The median from Jan 2011 (homebuilding low) to current times is 1.74 million. In other words, existing home sales inventory remains low even if the level is materially higher than the stunning low of 850K of Feb 2022 ahead of the end of ZIRP and start of the tightening cycle in March 2022.

The existing home inventory balance had shown a steady rise off the sub-1 million lows of 2022. Inventory had risen to the 1.3 million handle range in 2024 before dipping back down to a low of 1.14 million to close out 2024. We bounced off those numbers in 2025 to get back above 1.5 million handles before the move lower to 1.2 and 1.3 million handles and then back to current levels above 1.5 million

.The above two-sided chart updates the trend line in total existing home sales vs. new single family homes. After some material disruptions in the data updates during the 2025 shutdown, the new home sales data is back on line (see New Home Sales June 2026: Soft Pricing, Tepid Volumes 7-25-26). It’s clear that both are low in historical context. A notable exception is the post bubble housing crisis plunge as highlighted in the time series.

The above chart breaks out the timeline for July existing single family only of 3.69 million vs. total existing home sales of 4.06 million. The 4.06 million total is well below the long-term median (from Jan 1999) of 5.2 million. The total of 3.69 million for single family is well below the long-term median of 4.62 million.

Existing single family growth was -5.7% sequentially and +2.8% YoY (SAAR). The lower line is ex-condo/ex-coops. We saw 370K in condo and coop sales in July 2026, flat to 370K YoY and flat to 370K MoM.

The above chart updates the median price for existing single-family homes at $440.3K (vs. $434.1K for total existing). That is above the July 2025 level of $432.0K for single family. The median price in July 2026 is dramatically above the $308K level back in Jan 2021 and $277K in Dec 2019. Mortgage rates were in a different zip code in Jan 2021 and were below 3%.

The above chart shows another angle on the sales mix across the price tiers. We just lift the numbers off the monthly handout for single family homes released by the NAR each month. Higher price homes and wealthier buyers have had a better time across this cycle. The “K recovery” certainly applies in housing given the mortgage pressure on monthly payments.

This pattern feeds the dynamic of builders targeting higher price homes vs. starter homes. Meanwhile, the funding costs of a home purchase (new or existing) are a deterrent to “move-up” sales by existing homeowners facing much higher refinancing costs if they are sitting on 3% and 4% handle mortgages. That remains a major headwind for existing home sales volumes as well as new building of move up homes.

The $250K to $750K range is comprised of two tiers that add up to almost 2/3 of the market with the $100K to $250K showing a big share in some of the Midwest states as detailed in an earlier chart.

We looked at the growth trends for each tier earlier. The two lowest price tiers saw volumes decline while the top 4 tiers rose. The lower price tiers are more on the cusp of where affordability and mortgage eligibility could be strained in the 6.8% area handle mortgage rates (based on Friday’s close in the Mortgage News Daily survey).

The existing home sales trends make for overall unfavorable news in 2026 for the housing sector in terms of volumes and prices.

See also:

Market Commentary: Asset Returns 8-11-26

Market Commentary: The Curve 8-10-26

Payroll Deltas July: Mixed Bag, Mediocre Numbers 8-9-26

The Curve: Steeper, Inflation Anxiety Remains 8-2-26

Employment Cost Index June 2026: Inflation > Wage Growth 7-31-26

June 2026 PCE: Inflation, Income, and Outlays 7-30-26

2Q26 GDP: Good Underlying Numbers Despite Headline 1.5% 7-30-26

Producer Price Index June: Still Hurts…Just Less. 7-15-26

CPI June 2026: Eye of the Storm? 7-14-26

• We detail July payroll trends with targeted payroll deltas from the Establishment Survey from the top down. We also dig into Construction, Manufacturing, and Service-providing lines.

• July brought the 7^th negative month for payroll additions since Jan 2025, which also comprises the only payroll declines since the tightening cycle began back in March 2022. The July BLS release saw 2 material downward revisions for May and June.

• July eases some (not all) of the concerns around FOMC getting nervous on job trends and flowing into a tightening plan, but the negative real wage growth is not making those on the payroll any happier. As we go to print, the odds from CME FedWatch show the probability of a Fed easing by the Dec 2026 FOMC at 22.0% for no action, 44.5% chance of 1 hike, 27.4% chance of 2 hikes, and 5.2% chance of 3 hikes.

• We would expect the negative real wage growth seen in the July payroll release and in the 2Q26 Employment Cost Index data to drive a major national minimum wage increase advocacy program given how that topic can raise pressure in the Senate and House and down into the state houses at the Governor and legislature level. We see several proposals in process including some phase-ins to $25 per hour. The political heat will need more headline advocacy from a Democratic party that cannot get out of its own way (see Employment Cost Index June 2026: Inflation > Wage Growth 7-31-25).

• The negative real wage topic will be the “mirror test” for Democratic party policy planners and something where centrists and “progressives” can find common ground. The minimum wage is about working-class support and affordability. The last legislation was phased in from 2007 to 2009 to $7.25 per hour. Prior to that, the 1997 legislation was $5.15 per hour. Note: some state and local entities legislated their own given GOP opposition at the Federal level.

• On wages and affordability, there is a clear history that makes minimum wages mainstream. To quote Theodore Roosevelt’s 1912 Progressive Party platform statement: “We stand for a living wage. Wages are subnormal if they fail to provide a living for those who devote their time and energy to industrial occupations.” Please note that was “Teddy” and not Marx or Lenin (not that Trump has read a single page written by either of the latter two).

The above monthly payroll additions chart brought another negative month on payroll declines. Since Jan 2025, we have seen 7 of 19 months in negative range under Trump. Those are the only negative months in the chart as shown since the start of the tightening cycle in March 2022. Prior to that date, the last negative month we saw was Dec 2020 in Trump’s last month in his term. Welcome to the Golden Age.

One can make qualitative assessments on the mix of occupations reporting increases and decreases in payrolls, but the reported number in July flunks the “MO jobs, MO money” rule needed to support consumer spending volumes.

Now the question is “How much money is left for discretionary spending after the effects of inflation and lower real wages?” Add in even more tariffs and more energy cost pressures rolling into the working capital cycles (materials, power, transport, etc.) and households are facing a problem.

That long-term median from Jan 2009 of +160K includes a slice of the longest recession since the Great Depression, so it is not a high bar to clear. Since the Jan 2025 inauguration, Trump has exceeded the post-Jan 2009 median in a single month (April 2026) with Jan 2026 on top of the median. We don’t expect Hassett or Bessent to raise that topic.

The above chart plots the running job adds/declines since Jan 2009 against the unemployment rate, which at 4.1% (4.09%) remains a full employment level even if the Household Survey data (addressed in a separate chart below) is showing material contraction in the labor force denominator.

In the chart, we isolate the worst months of the COVID dislocations in the box for better visuals to capture the other periods. The 4.1% U-3 is below the long-term median from Jan 2009 of 4.9% (5.0% from 1994).

Payroll has been struggling somewhat in relative terms in 2025-2026, but history is very kind to 4.1%. The U-3 is a different exercise than “counting employed heads” in narrow context. As we cover below, the total employed are down by -963K YoY.

If the 2025-2026 frame of reference for payroll additions is 2024 (not a good jobs year) then the 2025-2026 numbers are acceptable (not great). If we compare 2025-2026 monthly adds to the 2022-2023 period, the current job add run rates are weak.

The above chart and the following 2 charts are essentially cut and pastes from LinkedIn post on Saturday:

The above chart details the monthly data dance between the Household Survey Data vs the Establishment Survey. The unemployment rate of 4.09% as always has a few moving parts with the total of employed, total unemployed, and civilian labor force all lower.

For those of us who work off the “total paycheck rule” the paycheck count translates into purchasing power – or simply the ability to service growing debt burdens. The monthly PCE reports show steady consumption but also much lower savings rates.

By the total “jobs added” metrics, the payroll trends are not very impressive in 2025-2026 or simply soft. The numbers came in well below expectations after also coming up short vs. the ADP estimates. The UST 10Y initially traded down by less than 2 bps and the 2Y UST and just under 5 bps lower as we go to print. We look at UST deltas for the week separately. The week saw another healthy rally with the need to digest latest gamesmanship on peace terms.

The usual high-level focal point around the “body count” metrics is total labor force and participation rates and related deltas. The participation rate is 61.4%, down from 62.2% YoY and 61.5% sequentially from June. A growing population and basic demographics should translate into higher GDP, higher payrolls, higher production, and higher trade flows. Otherwise, people dig out old movies to watch (think “Soylent Green”).

Some of the decline can be tied to factors such as local education that gets rolled back into the numbers in the fall, but we are seeing YoY declines in local education as well. Local ex-education is up YoY. We will look at more occupation lines separately, but the -40K MoM in “Leisure and Hospitality” could be telling a story on the K recovery and affordability. The same could be the case for the -19.4K in MoM in Retail Trade.

The theme of “low hire, low fire” is still playing out but against a backdrop of weak affordability as covered in other commentaries. Wage growth has been lagging inflation (or slightly over/under inflation) by various metrics. The latest wage growth rate of +3.2% in the BLS payroll release is below headline PCE inflation (3.7%) and headline CPI (3.5%). That is negative real wage growth. Maybe Trump can peek at that relationship while claiming “affordability” is a fake term made up by Communists. It is long division and subtraction/addition taught in grade school.

Some limited good news from JOLTs (1-month lag) this past week was that June hires were up MoM but only fractionally higher YoY. In our view, that is offset by lower job openings and higher separations that leave payroll prospects muddled at best with AI remaining a wildcard everyone is still trying to figure out. In JOLTS, we at least see hires focused more in Durable Goods and Construction. Leisure and hospitality hires were down materially in June (reminder: 1-month lag for JOLTS).

The education lines at the local level jumped out in the BLS payroll release. In what seems to be a fact-free world some days where reading is considered a superfluous activity, education is more important than ever. As a subjective assessment, we see fewer people reading (referring to Congress) and fewer teaching according to these BLS statistics. That only serves the interests of a certain crowd that prefers their voters ignorant and uninformed factually. They know who they are…

The chart above breaks out useful MoM and YoY payroll deltas for some important goods-producing occupation lines in Construction and Manufacturing. The prior chart posted deltas from total payroll down across the high-level categories of private, government and notable lines within those groupings such as total goods, services, and key government groupings. The above lines address some of the more politically charged sectors in goods that are being supported through tariff policies.

Overall, payroll tallies by group added up to a mediocre month that drove a slight rally on the day in the 2Y UST and minimal downtick in the 10Y. A strong jobs report would have fueled some inflation anxiety with wage growth lagging and real wages in the red. The wage trends are a missing link for a higher level of inflation anxiety. This coming week we get a fresh print on CPI and PPI with a return to higher energy costs in July after the June energy relief.

Construction and Manufacturing payroll deltas in the chart tell a mixed story. The use of tariffs are questionable in terms of the economic conceptual foundation. Trump will still not admit that the buyer writes the check for the tariff, and the media is too cowed to ask him that direct question again in live Q&A. His econ and policy team simply lie or evade.

We would expect in a growing economy (it grows every year with rare exceptions) and growing population, total payroll should be rising outside a major macro shock. That is broadly what is unfolding despite some negative months. We see some YoY declines by industry as noted. Some declines are linked to sector weakness (residential), some are structural at the industry level (nondurables), and some of the pressure is secular and permanent (Apparel and Textiles).

The Construction business has been booming in nonresidential with residential still feeling the pain of mortgage rates, supply constraints, and post-COVID housing affordability stress. The increased payroll in nonresidential vs. residential construction is very clear.

In Manufacturing, we highlight some bellwether industries within Durables and Nondurables. Durables are doing better YoY within a range. Notable declines YoY include “Motor vehicles & parts” at -10.9K within the broad “Transportation equipment” group that rose by +13K YoY. The “Furniture” decline was significant given the dubious goals of tariff support that we also saw with autos. While it is a data exercise for another day, Manufacturing, Durables and Motor Vehicles are also lower in July 2026 than they were in Dec 2024 at the end of Biden’s term.

Nondurables were down YoY. Numerous lines lend themselves to “capital replacing labor” via automation. The barriers of labor costs in the US (notably Apparel and Textiles) make tariffs a policy of “brooming water up a hill” if the goal is to bring those jobs back. Prices will rise for consumers and retailers will face cost pressures to pass on. Tariff policies will not bring jobs and investment to undo that damage in such nondurable industries that are tied to low-cost labor and automation.

The chart frames the MoM and YoY payroll deltas for private “service-providing” occupation lines. This is a selection of key industries that roll up under the umbrella of “total services” payroll that comprises 84% of private sector headcount. The “goods-producing” payroll is the other 16% of the private sector. Service-providing payrolls are almost 72% of total payroll if we include the 23.3 million jobs listed under the Government heading (Federal, State, Local). It is not a hot news item that the US is a services economy.

Services drove a +566K delta YoY in payrolls for July 2026. Among interesting trends, we see a YoY decline in Transportation and Warehousing that include declines spread across a range of lines under air, rail, and truck transport. The backdrop of trade disruptions will be a factor to watch with highly uncertain policies potentially undermining expansion plans near term.

The multiplier effects that come with goods crossing the border in turn flow into freight and logistics and finance revenues and generate jobs and profits in the US. The “MAGA myopics” tend to ignore that reality of how many economic multipliers come with imports on their intra-border journey to the eventual buyer. Trump still sees a trade deficit as simply an invoice and a check written to other countries. He cannot comprehend the US buyer made that decision for economic reasons relating to profitability goals (some textbooks call political leaders overruling such private sector decisions “communism.”)

The most glaringly obvious takeaway is the outsized role of the personnel-intensive health care sector and its range of subcategories. Health care comprises 18.5 million jobs. “Health care and Social assistance” combine to a total just under 24 million. That scale of headcount is no surprise given that the health care industry, more broadly defined, amounts to around 18% of GDP. The moving parts of Health care and Social assistance demand is part of an aging society.

The many challenges from health insurance premiums (notably ACA) and how it all flows into coverage affordability overlaps with a maze of health care products, services, and government programs. That in turn makes this broad sector one that dominates political conflicts.

The “Obama vs. Trump” themes in health care have made health care more about party conflicts than economics. With a somnambulist zombie of limited experience and low talent running national health care, the situation keeps getting worse for collective health and household healthcare economics. The reality of demographics is as important as the politicization of the topic. It is no surprise we see steady payroll growth across the years in a range of the services lines catering to the senior citizen ranks of the boomers. The desire to just cut rather than improve the flows of heath care goods and services is apparent as well as cruel.

The other big services line that can swing around is Leisure and Hospitality with -40K MoM for July but +83K YoY. The theme of “eat, drink, and get sick” is hard to escape.

The jobs deltas saw the U-3 dipping slightly below the 4.1% line (4.09%). The U-6 was also steady moving sideways at 7.9%.

As a reminder, the U-6 metric is defined with the numerator as “total unemployed + persons marginally attached to the labor force + total employed part time for economic reasons.” The denominator is “civilian labor force + workers marginally attached to the labor force.”

As we covered earlier in the YoY deltas and the Household Survey data, the civilian labor force is down sharply YoY with the category of “not in labor force” spiking. “Not in labor force” can be as simple as someone who wants a job but is not actively looking. The turmoil in the tech services headcounts of late and downsizing of government departments are easy ways to envision why this trend is unfolding.

The U-6 is the structural underemployment metric that is always useful to watch. To start 2025, the U-6 rose sharply in Feb 2025 to 8.0% from 7.5% in Jan 2025. The U-6 jumped to 8.7% in Nov 2025 from 8.1% in Sept 2025.

The current 7.9% marks a decline from 8.1% in May and 8.2% in April. That is good news. The current U-6 is well above the 6% handles seen in spring of 2023. The U-6 is still below the median from 1994 of +9.3%, which notably includes the post-crisis shock and the longest recession since the Great Depression.

In the chart, we isolate the worst months of the COVID dislocations in the box for better visuals to capture the other periods.

The time series above updates the U-6 minus U-3 differential as a measure of relative employment quality and to flag risks of major dislocations in large swaths of the economy (think oil patch collapse in the late 1980s, tech bubble imploding into a weak 2001-2003, and financial services and automotive meltdown in 2009).

The current 3.8% differential is below the long-term median of 4.0%. The job ranks are still vulnerable now with stubbornly uncertain and erratic developments in Iran. The risk (notably the FOMC, consumer health, and goods costs) will necessarily be a factor to consider in hiring decisions.

The anxiety around where the UST curve, energy costs, and raw materials go from here remains high in terms of the impact on working capital cost inputs and employer decisions. The feedstock costs have been ugly until the recent adjustments in more than just oil. Iran peace promises are often heard as settled, but “it ain’t over ‘til it’s over” clearly applies. The housing sector remains quite vulnerable to any UST steepening risk.

The above chart updates total payroll vs. the unemployment rate. The trend needle has not moved much in 2026 and has been in a narrow range. More bodies with more paychecks are always a good thing but July was a setback. Meanwhile, the Household Survey data pushes back on the Establishment Survey in terms of the direction of total employed heads.

The trick from here is how the consumer deploys their paychecks and whether the zero-sum realities of household budgets undercut spending. The PCE line in the GDP accounts is a critical driver of growth and negative real wage growth. In reality, this can be a leading indicator for spending or wage demand pressure.

That PCE growth represents 68% of GDP, so the improvement in 2Q26 GDP after a very weak 1Q26 GDP offered some tangible cyclical relief (see 2Q26 GDP: Good Underlying Numbers Despite Headline 1.5% 7-30-26, GDP 1Q26 Final: PCE Growth Plunge 6-25-26).

The consumer sector was a worry, but you never heard the talking heads in the White House (notably Hassett) discuss the weak PCE growth until some good 2Q26 numbers arrived. The PCE growth is well below what we saw in 2024 when it was near 4.0% for the last few quarters (back when the country was “dead” per Trump). Numbers are objective, but the adjective-heavy crowd avoids them.

The above chart updates the total payroll numbers vs. job openings. Management teams have a lot of moving parts to factor into planning whether quantitative or qualitative before they fill the openings. The potential for a wave of new tariffs ahead with the USMCA demise or replacement and clear ambition to aggressively tariff Canada and the EU are not incentives for employers to rush out and fill the job openings or launch more initiatives where the economic inputs are in a state of flux. It is also an election year where political risk is rising to levels that the US has not seen since 1860.

The final IEEPA decision from SCOTUS came in against Trump, but he was prepared to start slapping on tariffs under Section 122, 232, and 301. More recently, Trump has unearthed a clause with the Smoot Hawley tariff legislation of 1930 using Section 338. When in doubt, a natural plan is to go to the Hoover playbook (that worked so well).

Trump’s priority is to maximize tariff revenue no matter how contrived and specious the grounds. My personal favorite remains the Section 232 national security tariffs for upholstered furniture. The need for a good cushion is critical to US defense (!?).

The trade flows have been looked at in many past commentaries (see Trade Deficits: The Moving Parts and Macro Goals Matter Most 6-24-26, Meanwhile…Back in Economics and Tariffs 3-2-26, US Trade with the World: Import-Export Mix 2-25-26). The US has a goods trade surplus with Canada ex-oil. Canada is also the leading export market for almost 3 dozen US states. Those states, including every central and northern swing state, might have something to say about that…perhaps in midterm elections.

CPI vs. unemployment rate is plotted above. The big worry back in March was fear of stagflation – something not seen since the 1980-1982 double dip under Volcker (except a brief touch of worry in fall 1990). That has subsided in recent weeks despite the higher inflation numbers. It would take a massive setback in US-Iran escalation risks to change that, but the weekend brought more bad news on the Strait reopening and the end of Gulf conflicts. At some point, China will ramp up buying oil on a grand scale again.

The overall economic impact of tariffs has been far less than feared given the reality that most trade partners backed down in 2025. That still could change in 2026 with the latest wave of Section 301 and Smoot Hawley 338 attacks on supplier chains and trading partners. There is always the chance that Trump might push Canada and Mexico too far and the same for the EU. Notably, export taxes on Canadian resources would be an inflationary game changer.

• The latest new single family home sales release from the Census shows a slight sequential MoM increase of +1.6% but down by -5.6% YoY. The 628K was lower than 2H25 and 3^rd worst in the LTM period.

• The critical South region (65% of sales) ticked +9.9% higher MoM but was down by -1.4% YoY. The #2 US region in the West (17% of total) was down by -22.4% MoM and -24.6% YoY. That geographic mix shift was enough to pressure the median prices lower to $398.3K in June from $412.0K in May.

• The monthly mortgage payment strain for new or existing homes will not see relief with mortgages at 6.8% after the expectation of getting back down to 6.0%. Massive increases in US budget deficits, UST supply anxiety, and an escalating US-Iran conflict devoid of realistic exit strategies is not making life easier for the housing sector with tariff disputes doing damage to the supplier chain.

• This week we get the FOMC meeting, the advance estimate for 2Q26 GDP, and the PCE inflation and income and outlays release. The expectation is that PCE growth for 2Q26 will rise off the abysmal +0.5% of 1Q26.

The above chart updates the new single family home sales series from 1963, and the current 628K (SAAR) is only slightly below the long-term median (636K) and modestly above the revised May 2026 tally of 618K (as revised).

The median of 989K in the housing boom/bust cycle from 2001-2009 is almost 60% higher. As we look back to the peak of the housing bubble, we see 1389K in July 2005 at over 2x the June 2026 volume. The COVID panic buying and relocation spree in Aug 2020 saw sales of 1036K in a wild period for new home sales and home starts in a ZIRP market with very low mortgage rates. The market today is facing much higher prices since COVID and 30Y mortgage rates that hit 6.85% this week before ending at 6.81% (Mortgage News Daily survey).

The above chart plots the share of total home sales (new + existing) that were captured by the “new home” builders. We see the share is now at 13.3% vs. the long-term median of 11.6%. When inventory is scarce, the right home at the right price wins. The challenge overall for new home sales has been mixed for builders by region.

Major homebuilders generally continue to report gross margin compression in 2026 and guide to similar expectations for the year. We are seeing lower prices from the builders even if that comes with the asterisk of product tier and geographic mix.

The market edge for closing a sale favors builders vs. existing home sales (note: existing is still the vast majority of sales volume). The homebuilders have the ability to use incentives and financing support (see Existing Home Sales June 2026: The Stall is On 7-11-26), and the homebuilder can tailor packages to close sales.

Given the mortgage rate headwinds undermining volume in the existing home sales market whether “golden handcuffs” or a challenging monthly payment bar to clear for many, the shortage of existing housing inventory at economic all-in costs (price and mortgage rates) has been a recurring drag on that side of the home sales tally.

In new home sales, the gap between the expectations of the seller and buyer is easier to bridge through the incentive programs or the ability to offer variations in home design and specs to make a transaction work.

D.R. Horton as the #1 US homebuilder offers a useful microcosm of the new home challenges (see D.R. Horton: Financial Powerhouse Despite Cyclical Softening 5-20-26). The 6% handle mortgage rates have been a struggle and have moved in the wrong direction with more than a few market watchers thinking 7% could still be crossed given the ugly direction of budget deficits, oil prices, and volatile inflation handicapping.

The new home sales volumes are softer with total new homes down by -5.6% YoY. Prices posted this month dipped back below the $400K line. D.R. Horton and Pulte both reported June quarter results this past week and both reported lower average selling prices YoY for the quarter. Average Selling Prices at the builder level come with the asterisk of product mix and region. The builders face the reality that incentives are still a material part of the builders’ selling strategies.

The 10Y UST is the key benchmark for the direction of 30Y mortgages and that has been moving in the wrong direction YTD. The oil wildcard could ease pressure on the longer end of the curve if “peace breaks out” but that is not looking good right now.

The “Vegas odds” at CME’s FedWatch shows the odds of no change by the Dec 2026 FOMC meeting at only 7.2% while 1 hike is at 31.5%, 2 hikes at 39.1%, and 3 hikes at 19.0%. That is not pretty. Warsh will need a very creative new data set to erase inflation fear and convince the voters.

The CPI, PCE and PPI inflation metrics have been grim despite the inflation easing in June after May sent headline numbers over 4% (Producer Price Index June: Still Hurts…Just Less 7-15-26, CPI June 2026: Eye of the Storm? 7-14-26). July is undergoing another round of oil market heat, and Iran War setbacks that will flow back into July inflation numbers.

The median home price time series above tells a simple story that prices had been under modest pressure after a period of record highs and a long stretch over the $400K threshold with a few dips below the $400K line. We had another dip below that threshold in June at $398.3K.

The move lower to $398.3K from $412K (as revised) can have a lot of contributing factors from mix to region, but a decline is consistent with the major builders reporting. The South’s lower ASP mix can factor in as a lower ASP region, but the “South” by itself has a very wide range as well. The South posted a +9.9% sequential MoM increase in volumes (-1.4% YoY) while the West was down sharply by -22.4% MoM (-24.6% YoY).

The above chart gives a different visual angle on the median new home sales prices from early 2022. That is a lot of $400K handles with some sub-$400K outliers. The June 398.3K posted is more in line with the $398.7K in March.

The price metrics can shift with regional mix as well as home price tiers and related supply issues. The affordability question is still more intertwined with the monthly payment pressures from mortgages. It is about more than price. Those monthly payments are very sensitive to mortgage rates more than home price moves.

The time series above updates the new single family home sales across the cycles since 1973 for the #1 and #2 regions of the South and the West. The 412K for the South is around 65% of the total of all single-family new home sales (SAAR) and marks a sequential increase of +9.9% from April 2026 and is down by -1.4% YoY. The West at 104K is 17% of the total. For the month, the West was down by -22.4% sequentially and by -24.6% YoY. The South is running ahead of the long term median of 313K while the West is below the median.

The timeline for new home sales for the smaller Midwest and much smaller Northeast market is detailed above. The Midwest (13% of total) was +16.2% sequentially and -3.7% YoY. The Northeast market (5% of total) was +3.0% sequentially and +17.2% YoY.

· Housing has been feeling the mortgage pain flowing into monthly payments while supply issues in single family homes are still a headwind. Multifamily continues to carry the ball for the headline trends in total starts.

· The +19.0% increase in total starts MoM from May included -0.2% in single family and +76.3% for multifamily, which was at a high for the trailing year. The YoY total starts posted +3.5% with single family at -3.2% and multifamily at +19.3%.

· More markets are starting to see downward price pressure in new homes based on builder color, and we get new home sales data this coming week. Last month’s median price moved higher (see New Home Sales May 2026: Weak Volumes, Stable(ish) Prices 6-25-26).

The above chart offers a clear reminder of the wild single family residential construction cycles across the decades. With favorable demographics for housing demand, the current starts run rate of 895K (vs. 897K as revised in May) is still well below the long-term median of 1007K and below all the timeline medians posted above except for the “crisis to current” timeline starting in Jan 2009 at 831K, which is in a similar zone in the post-crisis period.

The current backdrop includes mortgage rate pressures undermining the affordability of monthly payments with the Mortgage News Daily 30Y survey closing Friday at 6.63% (down from 6.75% earlier in the week). Mortgage rates are not likely to get much better from here in the peak housing season and with the Iran War and Strait of Hormuz crisis more likely threatening UST bear steepening than bull flattening. That comes after seeing mortgage rates flirt very briefly with crossing below the 6.0% line in Feb 2026, just before the Iran War.

The above chart plots total permits and total starts and single family starts and permits on a Not Seasonally Adjusted (NSA) basis. NSA is viewed as closer to what is going on in the trenches without the SAAR model assumptions.

For June 2026, we see NSA total permits lower by -0.2% YoY. Single family permits were higher by +4.1% YoY. Total permits were +7.8% higher MoM with single family permits up by +5.7 MoM.

For total starts and single family starts on an NSA basis, we see total starts up by +4.0% YoY and +23.2% MoM. For single family NSA starts, the YoY deltas were lower by -3.8% while MoM was up by +3.1%.

The above plots the single family starts by region (NSA). On a MoM basis, the critical South region (totals 51.9% of total NSA starts and over 58% of single family starts) was up in single family by +3.4% MoM and up by +1.5% YoY. The West as the #2 single family market (22% of total) was up 16% MoM. The Midwest region MoM in single family was -11.0% with the small Northeast market at -1.8% MoM. The YoY NSA starts were mixed with the South higher and West both higher among the big two regions. The Midwest was higher and Northeast lower.

The above chart updates running multifamily starts. At +513K (SAAR), June 2026 increased by +76.3% MoM from May after May posted a massive decline from April. The 513K is only 3.8% above April and 6.6% above March. The decline in May was the anomaly.

The 513K is well above the long-term median of 339K and well above the highest timeline median from Jan 1960 to Dec 1972 of 487K. That 1960-1972 period was when the urbanization boom was ongoing. The 1960s was a period of explosive growth for multifamily with the back end of the baby boom, the postwar rise of urbanization, and the high racial migration from the South to the North all part of the multifamily tailwinds. Immigration also played an important role.

The above chart updates Multifamily permits (SAAR). The 445K in June 2026 multifamily permits declined by -4.9% MoM and was down by -6.3% YoY.

The bottom line on home starts as we move further into the peak selling season is that 2026 is shaping up as a mediocre year at best for homebuilders. This is consistent with the guidance we are getting from the major homebuilders.

See also:

Producer Price Index June: Still Hurts…Just Less 7-15-26

CPI June 2026: Eye of the Storm? 7-14-26

Market Commentary: Asset Returns 7-12-26

Existing Home Sales June 2026: The Stall is On 7-11-26

Happy 250th Birthday America 7-3-26

Employment Situation June 2026: Back to a Crawl 7-2-26

JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26

Music to Ponder: Hope Rising or Blood Simmering? 6-30-26

The Election Gambit: Economic Risk and Policy Uncertainty 6-29-26

JD Vance and Nixon History: Clueless 6-27-26

Personal Income & Outlays May 2026: Bad Inflation, Balanced Spending 6-26-26

New Home Sales May 2026: Weak Volumes, Stable(ish) Prices 6-25-26

GDP 1Q26 Final: PCE Growth Plunge 6-25-26

Trade Deficits: The Moving Parts and Macro Goals Matter Most 6-24-26

The FOMC Dance: Will Warsh and Trump Find a Rhythm? 6-17-26

Housing Starts May 2026: Weaker for both Single Family and Multifamily 6-16-26

Geopolitical risk: Trump’s Nuclear Saber Rattling? 6-14-26

Remembering D-Day: June 6, 1944

The Fall of CBS 6-3-26

• Despite the temptation to extrapolate from AI and high related capex to a broader industrial boom and the “Golden Age” for manufacturing pitched by the White House, the numbers just are not there with capacity utilization in manufacturing below 2022, 2023 and 2024 levels.

• On the other side of the partisan ledger, there is no sign of the vaunted “collapse” often cited as caused by Trump policy critics. Industrial production is steady even if manufacturing capacity utilization of 75.7% is well below the longer term median of 78.4% (post-1967). Capacity utilization is below shorter timeline medians of numerous prior cycles with 76% and 77% handles.

• The theme is “steady as she goes” in another boring set of IP numbers in June. Total industrial production ticked higher MoM by +0.1% but up +1.1% from a weak set of June 2025 numbers. That said, the June 2026 capacity utilization of 75.7% is slightly ahead of June 2025 at 75.6%. That remains below the 1972-2025 average of 78.2%. We last saw 78% handles for a quarter in 2023 and a 77% handle in 2024 (back when Trump says the country was “dead”).

The above chart is somewhat of a regular replay of the history of the industrial production cycles across time from 1967 through today. We have covered much of this in the past, but we roll the historical recap forward for convenience. We get new readers and students all the time, so we use it as a mini history. For those used to this history, I added some new angles in this version but otherwise you can skip to the next chart.

Here’s a topical summary of the history sections:

A look at the top down utilization numbers…

A brief cyclical lookback on replay…

Bring on the tech boom and excess…

The credit crisis arrived in the summer of 2007 and peaked in late 2008…

COVID, ZIRP, and a license to print risk…

Time for the new age transition to AI plus some old school crises…

As an “old guy” who covered such industries as autos and steel credits back in the 1980s (and worked on a few audits of resources and energy companies), we have seen plenty of cyclical stress and secular shifts. I came of working age in the first stagflation wave and oil spikes of the 70s and early 1980s, and much of the “old and new” is evident these days. Cyclical change and secular trends always get mixed in, and the evolution (or collapse) of industries is not new. The manufacturing sector is wrestling with the tariff waves in a world with global supplier chains. Oil spikes are not new.

For June, the “business equipment” line of industrial production is doing quite well at +5.4% with “information processing” up by +8.2% in June YoY. Consumer durables are down YoY with the exception of the “home electronics” line (Table 1 of the release). Defense and space equipment is up by +6.5% but construction supplies only +1.5%. Within Industry groups, “computer and electronics” was +9.2% YoY. Overall, durables manufacturing in industrial production was +3.2% and nondurables was -1.1%.

A look at the top down utilization numbers…

The capacity utilization trends are covered in the charts below, but it is always good to keep in mind that there are two moving parts: capacity growth and the rate of utilization. Over/under expansion relative to demand can shape pricing power (e.g. semiconductors on a global scale).

The current 75.7% for total manufacturing utilization is well below the long-term median of 78.5% and below the post-COVID median of 76.2%. The industrial production and capacity utilization numbers are among many metrics that take the label of “greatest economy in history” off the table. Whether GDP growth or payroll trends, the current economy is a bottom quartile economy when the growth of the 1980s and 1990s are factored in (see Presidential GDP Dance Off: Clinton vs. Trump 7-27-24, Presidential GDP Dance Off: Reagan vs. Trump 7-27-24).

The wildcard for this current cycle is the scale of the fixed investment that is now ramping up around the AI ecosystem. The multiplier effects cut across the full array of products and services and extend across many major trade partners with Taiwan at the top of the list (see Taiwan: Stakes are High, US Awareness is Low 5-17-26, US-Taiwan Trade: Risks Behind the Curtain 2-1-26).

The consumer sector and PCE have been unimpressive, but fixed investment is now soaring (see GDP 1Q26 Final: PCE Growth Plunge 6-25-26). If you like comparing numbers (not a Washington thing) as opposed to spewing partisan adjectives, Trump 1.0 did not even frame up all that well vs. Carter and Biden – let alone the 1980s and 1990s (Gut Checking Trump GDP Record 3-5-25, Trump’s “Greatest Economy in History”: Not Even Close 3-5-25). Trump 2.0 is off to a slow start on GDP growth and payroll additions pale in comparison relative to the earlier glory years of the 80s under Reagan and the 90s under Clinton. That clear conclusion requires more numbers and less adjectives than we hear today.

A brief cyclical lookback on replay…

The chart shows the material swings across expansion booms and busts. That includes the aftermath of some highly damaging oil spikes that brought on cyclical weakness and later saw capacity utilization plunge. There were a lot more structural changes underway in those cycles than just oil and gas price pressures.

The pace of industry restructuring was notably the case in the 1980-1982 double dip as well as the recession of late 1973 to early 1975 when the Arab Oil Embargo set off chain reactions that turned the post-1973 period into an ebb-and-flow of macro nightmares for inflation and the consumer. Currency trends and labor costs were going through major changes across many years.

The May 1975 low of 71.6% followed the first bout of severe stagflation that unfolded after the Arab Oil Embargo. The 1980-1982 double dip recession came after the 1979 inflation spike took off with the Iranian oil crisis. The themes from Middle East wars or OPEC clashes (Iran vs. Iraq in the 1980s, Iraq vs. Kuwait/US in 1990) are being revisited today. There is room for conflict to get much worse with a wide range of potential geopolitical outcomes.

Capacity utilization saw a 68.7% low in Dec 1982 as the economy was just coming off the recession trough. The first Gulf War came after the August 1990 invasion of Kuwait with capacity utilization hitting a low in March 1991 at 77.2%, which is above where capacity utilization stands now in 2026. That takes some of the edge off the “greatest economy in history” hype.

Bring on the tech boom and excess…

The age of tech and credit excess in the late 1990s brought some new swoons with 71.8% in Nov 2001 after the TMT meltdown and HY default wave rolled in. The Utilities and Power sectors and Telecom capex all took a beating in that time frame.

We recently saw a market commentary comparing and contrasting the tech bubble of the 1999-2002 swing with today’s valuations in the AI ecosystem. That writer had referred to the tech bubble of 1999 as NOT a case of balance sheet pressures as his theory was simply about valuation metrics. We are not sure which tech bubble he was referring to during 1999 but he missed 2 of the 3 letters in “TMT”. He was using internet stocks as his focus. The internet stock bubble was very different from the debt-fueled telecom (T) and media (M) credit cycle and market implosion.

The telecom-related, debt-funded capex and balance sheet stress of 2000-2002 was ugly with many cash flow bleeders heading to chapter 11 and distressed debt restructuring that also brought industry consolidation. The credit stress was much higher and the counterparty credit quality was much worse in 2000-2002 than what we see today. That does not change the fact that 2026-2027 will remain highly dependent on raising much more debt to “finish the job” that is being built into revenue growth and earnings models. That is anything but assured. If the debt markets balk, the stock valuations will see a lot of pain.

The credit crisis arrived in the summer of 2007 and peaked in late 2008…

The next crisis in the manufacturing sector plotted above came with the post-credit crisis low of 63.4% at the recession trough in June 2009. Mortgages and derivative excess caused a very real systemic panic and deep risk aversion from the Lehman Sept 2008 period and well into 2009. Banks and brokers collapsed and the whole Ghostbuster scenario (“cats and dogs living together”) started to play out. Fears of cascading counterparty collapses rose as did worries around mass credit contraction hitting a broad swath of businesses. That in turn led to bailouts by the UST and protracted action by the Fed (see Wild Transition Year: The Chaos of 2007 11-1-22).

That period in late 2008 and into 2009 was famous for the bankruptcy and bailout of GM and Chrysler and how that reverberated across supplier chains from materials to components. TARP and late 2008 had already hooked up the “bailout infusion.” The credit contraction threat was very real, and the recovery in payrolls was slow to unfold with the consumer hammered by housing sector pain (Autos: War Stories & Anecdotes 9-22-23).

COVID, ZIRP, and a license to print risk…

COVID edged out the June 2009 utilization bottom with a record low of 62.6 in April 2020 and a wild 2-month recession. That pandemic period saw ZIRP, supply-demand imbalances and later the Russian invasion of Ukraine and ensuing oil spike that set off inflation and a tightening cycle that still did not trigger a 2022 recession. The Fed should get some credit for navigating that timeline even if late to the party.

In the context of manufacturing, the ZIRP brought a wave of refinancing and extension of liabilities, low cost of capital encouraging investment and pent-up demand that rewarded rebounding inventories and capex. Consumer financing was cheap and captive finance companies had credit that the finance sector was ready and willing to offer.

Time for the new age transition to AI plus some old school crises…

As we detail below in the recession histories, the idea of what is low or high for capacity utilization in the context of corporate sector profitability is not as direct as one might think. Breakeven volumes, cost structures and pricing power are key drivers of profits.

The tariff excess as a core Trump policy only makes that unit cost analysis more complicated as we head into a new round of energy-related cost pressures in 2026. Material costs (notably petrochemicals, base metals), operating costs for companies, and consumer discretionary household cash flow headwinds make for a tricky set of moving parts shaped by erratic geopolitical decisions.

The AI upside as well as the fallout and related fears is a new variable in the mix that cuts across both the services and goods sectors. What AI will mean for productivity improvement vs. payroll contraction will be an ongoing test of theories. Even if AI proves true to the valuation promises and brings a “revolution” to the economy, many will also pay the price.

Revolution is a term often associated with a body count (even if jobs and not KIA). We have been getting a taste in the recent SaaS services panic. Those SaaS services markets consume a lot of goods and have a lot of employees. Total paychecks drive PCE, which is 68% of GDP.

The above table breaks out the high-level groupings with total industry and total manufacturing posting a mix of positive and negative variances in June 2026. We include a “delta column” on the right.

Mining and Utilities moved higher for the month, and the rational expectation is that utilities will see more capacity added and more demand. The data center and power supply issue is more pressing and getting more political by the day in an area where there has been working class bipartisan anger around the side effects of such projects on power costs and water threats among other issues. That controversy has spread to Canada where we are seeing more legislative and regulatory battles around the data center capacity plans.

It may be local on a center-by-center basis, but it will find its way into an assessment of data center adequacy at some point for growth, AI ecosystem valuations, revenue models, and cost structures. Any sense of faltering optimism around volumes (e.g. international restrictions on AI), pricing power, regulatory backlash, or political risks (elections have consequences, etc.) could roil valuations.

We see Durables and Nondurables as the main events to track, and durables showed some aggregate weakness this month, ticking slightly lower as a group. The durables sector is especially important with all of the supplier-to-OEM multiplier effects of tariffs and oil spikes. Some industries will lose and some will win.

The IEEPA SCOTUS setbacks and recent attempts by Trump to counterattack by “creatively” using existing tariff legislation is struggling in the courts. Trump goes to “Plan B” and “Plan C” in his attempts to cut Congress out of the tariff decisions. He is hanging his hat on Section 301 and has invoked “forced labor” rules as a loophole. He recently threatened France with triple digit wine tariffs even without IEEPA. He seems to forget the EU works as a bloc. He also threatened Canada over wildfire smoke even as the USMCA is up for review.

Looking back from 2025 into early 2026, we see Manufacturing in a relatively narrow range and the same for Durables. Tariffs have not moved the production needle much so far, but that does not tell the profitability story on the tariff cost impact. Most people (outside the White House) know that buyers/importers write the check for the tariff, so that implies a higher breakeven volume or some offsetting actions in other costs or pricing.

Those tariff impacts will only play out over time across working capital cycles. Pricing decisions are more likely to come at a lag given the White House pressures, so there is a lot more to play out in 2026 earnings seasons and in company color ahead of FY 2027 when midterm results will be in hand.

The inflation story has turned into a negative variable for the macro picture in 2026. The “good news, bad news” aspect of a resilient industrial sector is that higher input costs can lead to the exercise of pricing power that flows into inflation. That beats the stagflation alternative but will keep life challenging for the FOMC and “Team Warsh” (if he can assemble a supportive voting team).

The Iran effects eased up in June and now are heading back in a negative direction in July. “War is hell” but it is also very unpredictable for macro effects.

The above table breaks out the details for the top 5 Durables lines and the two largest Nondurables lines. We include the capacity utilization deltas in the column on the right. We see more negative moves across all the major durables industries with 4 of 5 lower. “Motor Vehicles and Parts” moved higher. The two major Nondurables lines were split with Chemicals down and Food, Beverage and Tobacco slightly higher.

The above table updates the capacity utilization history for expansions and recessions. As we routinely discuss, the ability of companies to generate solid profits at lower capacity utilization in today’s markets relative to past cycles is tied to both automation and the evolution of low-cost global supplier chains.

Low-cost supplier chains are getting severely undermined by tariffs and are now facing supply chain headwinds from the Iran War energy effects and the related supply-demand imbalances.

The “AI story” and what it all means for productivity and headcount will be a big part of the risk analysis ahead. The natural outcome will be less jobs in a service intensive economy such as the US. The irony is that the most immediate impact on jobs has been in tech, but that payroll retrenchment can easily spread.

The above chart details economic expansion and recession averages and lines them up by height as a frame of reference. We see the current level on the left at 75.7%. The fact that the current capacity utilization is below numerous recession averages posted on the right side of the chart also scoffs at the recurring “Golden Age” and “hottest country” rhetoric.

In the context of the tariff priorities and reshoring ambitions, the slack capacity implied by the chart in historical context underscores that the analysis is a lot more complicated than just “build more plants” and “keep tariffs high” to force reshoring. That is a story told on an industry-by-industry basis. It gets into themes around pricing power, cost structures and sourcing risks (tariffs, etc.). These days the topical questions revolve around “AI winners and losers” in productivity and the relative ability to adjust and engage in tariff cost mitigation strategies.

The multiplier effects are important, but the relocation of supplier chains and OEM assembly relocation and retooling is by definition very slow to unfold given intrinsic lag times, tooling equipment, and contracts in place. It is a slow and painful process battling against the reality of automation and downsizing in some industries.

Manufacturing jobs edged slightly higher in June 2026 on a MoM basis by +3K but remains lower YoY by -38K (see Employment Situation June 2026: Back to a Crawl 7-2-26, JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26). If we look back to the end of 2024 (Dec 2024), manufacturing jobs are lower in June 2026 by -160K. If we go back to Dec 2023 vs. June 2026, the decline in manufacturing jobs is -312K lower now with most of that in durables. That is not something to brag about. These numbers are all sitting in the BLS releases. Hassett or Bessent might want to take a peek as they toss around qualitative praise of themselves.

There is also the fact that the cost of relocation has risen with all the tariff effects for materials, components, and qualified labor. Autos are the main relocation stories, but that is generally going to be tied to existing infrastructure and not a strategy of all-new greenfield plants.

In the end, many companies can just wait for Trump to “move on” and revisit plans later. For autos, the attack on investment in EV related manufacturing has undermined some projects completed, in process, or in the concept stage. Fear of trade wars also can slow roll some reshoring and onshoring ideas.

The issues around the USMCA review and its fate effectively make planning much more difficult if not impossible to do with clear economic certainty on trade rules. Trump’s signaling that he may terminate the USMCA entirely regardless of any legal interpretations on whether his sole-actor decision is even legal. That adds more drama to a policymaking framework that does not lack controversy in the best of times.

See also:

Producer Price Index June: Still Hurts…Just Less 7-15-26

CPI June 2026: Eye of the Storm? 7-14-26

Market Commentary: Asset Returns 7-12-26

Existing Home Sales June 2026: The Stall is On 7-11-26

Happy 250th Birthday America 7-3-26

Employment Situation June 2026: Back to a Crawl 7-2-26

JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26

Music to Ponder: Hope Rising or Blood Simmering? 6-30-26

The Election Gambit: Economic Risk and Policy Uncertainty 6-29-26

JD Vance and Nixon History: Clueless 6-27-26

Personal Income & Outlays May 2026: Bad Inflation, Balanced Spending 6-26-26

New Home Sales May 2026: Weak Volumes, Stable(ish) Prices 6-25-26

GDP 1Q26 Final: PCE Growth Plunge 6-25-26

Trade Deficits: The Moving Parts and Macro Goals Matter Most 6-24-26

The FOMC Dance: Will Warsh and Trump Find a Rhythm? 6-17-26

Housing Starts May 2026: Weaker for both Single Family and Multifamily 6-16-26

Geopolitical risk: Trump’s Nuclear Saber Rattling? 6-14-26

Remembering D-Day: June 6, 1944

The Fall of CBS 6-3-26

• A major stall in existing home sales remains the order of the day with existing sales volumes at -2.4% MoM but +2.8% YoY. Existing home sales are mired in the low 4 million handle range at 4.09 million vs. 4.19 million in May 2026 and 3.98 million in June 2025 when numbers looked more like 2023 when mortgage rates were even higher. The median price hit a record high for total existing homes ($440,600) and single family ($446,400) as prices keep affordability strained even as inventory ticked lower.

• Negative real wage growth is not helping the housing sector story line at the macro level. The cost of the household goods and services basket relative to consumer cash flow is a different challenge than the inflation debate (recurring price increases). The affordability headlines often prompt semantic exercises from economists and policy makers on inflation vs. one-time moves, but the purchasing power problem remains in place for consumers even if headline CPI and PCE price indexes get under control. For now, the current 4% handles for CPI and PCE are grim (see Personal Income & Outlays May 2026: Bad Inflation, Balanced Spending 6-26-26, CPI May 2026: The 4% Rubicon 6-10-26).

• The inflation anxiety will necessarily remain high and unpredictable with the setbacks in Iran and renewed problems for the Strait of Hormuz supply bottlenecks (oil, LNG, aluminum and various materials side effects including copper, etc.). We get CPI and PPI updates this week along with Housing Starts and Industrial Production, so the cyclical color will offer some fresh visibility at the same time the wave of bank earnings is streaming out and 2H26 guidance will be getting digested. The earnings expectations are bullish so the inflation handicapping will heat up with it.

• As of Saturday morning, the FOMC odds remain grim according to FedWatch CME models. The odds of 1 cut by the Dec 2026 FOMC meeting date are 0% while the odds of 4 hikes are higher than that at +1.6% with the odds of unchanged at 14.6%. With respect to the hike odds, we see 1 hike at 37.8%, 2 hikes at 33.7%, 3 hikes at 12.3%. The 30Y mortgage rate stood at 6.64% as of late Friday per the Mortgage News Daily survey. The new Thursday Freddie Mac benchmark was set at 6.49%, up from 6.43% last week and down from 6.72% last year at this time.

The above chart details existing home sales SAAR run rates by month from January 2023 to June 2026 with 4.09 million in June 2026, down from 4.19 million in May 2026. As a frame of reference, in 2022 the market was posting 6 million and 5 million handle sales volumes in the first half of that year.

The recent existing home sales totals look more like the late 2023 period when mortgages had peaked (see Existing Home Sales Dec 2023: Rerun of Multi-Decade Low 1-19-24). The 30Y mortgage rate has moved within a 200 bps range since the Oct 2023 peak when Freddie Mac 30Y hit 7.8% and many mortgage offerings were near 8%.

The above chart shows the sales volume delta by price tier for June 2026, and we see 5 of the 6 price tiers posting positive growth with only the lowest price tier posting a decline. Note: We use “not seasonally adjusted data” for this chart.

For existing home sales, the monthly payment math is still unfavorable for those looking to cash out, move up, or simply relocate. Expectations for a bull flattener in the UST market that would translate into low to mid 5% mortgage rates have been crushed at this point for 2026 after major setbacks for that same scenario in 2025.

As noted in the bullet points at the top of the commentary, the market is pricing in 0% chance of Fed easing, and it is a very challenging leap of faith to see any probability of the conditions for easing getting better from here given steady payrolls and rising inflation. The Iran setbacks along with sustained inflation pressures do not offer much hope for a sharp move lower in the 10Y UST, which in turn dictates moves in 30Y mortgage rates.

An easing scenario would require a macro backdrop that hits payrolls and homebuyer confidence to make the FOMC take such action. That would require a radical event at this point. Such a move by the Fed could also drive a UST steepener subject to the underlying reasons used by the FOMC.

The oil spike and price swings since Iran plus the documented inflation pressures will make life a challenge for Warsh. The years of “repricing of the household basket” under Biden and again under Trump has made life a struggle for many and now we are looking at negative real wage growth.

We read a comment in Housingwire that highlighted slower home price growth vs. wages, but the funding costs (mortgages) and broader expense base that comes with home ownership and relocating undermines such a household budget assessment. The cash-in, cash-out analysis still says home ownership is mired in an affordability crisis in terms of the cost of ownership when considering financing and operating costs.

The above chart shows the geographic mix of volumes and details on price mix by region. The South is the main event in single family volumes whether new or existing at over 46% of total volumes.

For the bar chart, we break out the mix for each region by price tier. For example, the South shows almost 50% of its existing home sales volume in the $250K to $500K range and almost 17% of its sales in the $100K to $250K bucket.

The high cost of homes in the West (notably California) is clear enough just by glancing at the bar chart with over 17% at prices over $1 million. The second highest in the $1 million club is the Northeast at over 12%.

We see a major concentration across the regions in the $250K to $500K although the $100K to $250K bracket for the Midwest stands at almost 27%. The West shows a high share of 28% in the $500 to $750K bracket, which again underscores how expensive the West region price tags remain in national context.

The map explains what states are in each Census region. There is a very wide range of home price profiles in the West and Midwest states.

Inventory for total existing homes ticked lower MoM to 1.56 million units for -0.6% MoM and +1.3% higher YoY. Current inventory is well below longer term medians including 2.08 million for the post-1998 median. The median from Jan 2011 (homebuilding low) to current times is 1.75 million. In other words, existing home sales inventory remains low even if the level is materially higher than the stunning low of 850K of Feb 2022 ahead of the end of ZIRP and start of the tightening cycle in March 2022.

The existing home inventory balance had shown a steady rise off the sub-1 million lows of 2022. Inventory had risen to the 1.3 million handle range in 2024 before dipping back down to a recent low of 1.14 million to close out 2024. We bounced off those numbers in 2025 to get back above 1.5 million handles before the recent move lower to 1.2 and 1.3 million handles and then back to current levels above 1.5 million.

The above two-sided chart updates the trend line in total existing home sales vs. new single family homes. After some material disruptions in the data updates during the shutdown, the new home sales data is current again (see New Home Sales May 2026: Weak Volumes, Stable(ish) Prices 6-25-26). It’s clear that both are low in historical context. Notable exception is the post bubble housing crisis.

The above chart breaks out the timeline for June existing single family only of 3.73 million vs. total existing home sales of 4.09 million. The 4.09 million total is well below the long-term median (from Jan 1999) of 5.2 million. The total of 3.73 million for single family is well below the long-term median of 4.63 million.

Existing single family growth was -2.4% sequentially and +3.3% YoY (SAAR). The lower line is ex-condo/ex-coops. We saw 360K in condo and coop sales in June 2026, down from 370K YoY and down from 370K MoM.

The above chart updates the median price for existing single-family homes at $446.4K (vs. $440.6K for total existing). That is above the June 2025 level of $438.6K. The median price in June 2026 is at an all-time high and dramatically above the $308K level back in Jan 2021 and $277K in Dec 2019. Mortgage rates were in a different zip code in Jan 2021 were below 3%.

The above chart shows another angle on the sales mix across the price tiers. We just lift the numbers off the monthly handout for single family homes released by the NAR each month. Higher price homes and wealthier buyers have had a better time across this cycle. The “K recovery” certainly applies in housing given the mortgage pressure on monthly payments.

This pattern feeds the dynamic of builders targeting higher price homes vs. starter homes. Meanwhile, the funding costs of a home purchase (new or existing) are a deterrent to “move-up” sales by existing homeowners facing much higher refinancing costs if they are sitting on 3% and 4% handle mortgages. That remains a major headwind for existing home sales volumes.

The $250K to $750K range is comprised of two tiers that add up to almost 2/3 of the market with the $100K to $250K showing a big share in some of the Midwest states as detailed in an earlier chart.

We looked at the growth trends for each tier earlier. The lowest price tier saw volumes decline while the top 5 tiers rose. The lower price tiers are more on the cusp of where affordability and mortgage eligibility could be strained at 6.6% area handle mortgage rates (based on Friday’s close in the Mortgage News Daily survey).

The existing home sales trends make for overall unfavorable news for the housing sector in terms of volumes and prices.

See also:

Market Commentary: Asset Returns 7-5-26

Happy 250th Birthday America 7-3-26

Employment Situation June 2026: Back to a Crawl 7-2-26

JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26

Music to Ponder: Hope Rising or Blood Simmering? 6-30-26

The Election Gambit: Economic Risk and Policy Uncertainty 6-29-26

JD Vance and Nixon History: Clueless 6-27-26

Personal Income & Outlays May 2026: Bad Inflation, Balanced Spending 6-26-26

New Home Sales May 2026: Weak Volumes, Stable(ish) Prices 6-25-26

GDP 1Q26 Final: PCE Growth Plunge 6-25-26

Trade Deficits: The Moving Parts and Macro Goals Matter Most 6-24-26

The FOMC Dance: Will Warsh and Trump Find a Rhythm? 6-17-26

Housing Starts May 2026: Weaker for both Single Family and Multifamily 6-16-26

Industrial Production May 2026: Steady, Balanced Utilization Levels 6-15-26

Geopolitical risk: Trump’s Nuclear Saber Rattling? 6-14-26

Producer Price Index May 2026: Too Many “Since 2022” References 6-11-26

CPI May 2026: The 4% Rubicon 6-10-26

Remembering D-Day: June 6, 1944

Employment May 2026: Big Rebound, Low Multiplier Bias 6-5-26

The Fall of CBS 6-3-26

Retail Signal Read Part Deux 6-1-26

• A weak job adds total of 57K for June showed a major sequential decline from stronger May and April numbers. Both May and April posted material negative revisions totaling -74K with April -31K (+179K to +148K) and May at -43K (+172K to +129K). The unemployment rate ticked lower to 4.2% on the Household Survey numbers that showed a decline in the number of bodies employed and unemployed alongside a decline in the labor force.

• The Goods payroll only rose by +10K while Services rose by 39K and Government by 8K. The focal point of Manufacturing was only +3K with Durables +6K and Nondurables -3K. Among headline industry groups under the Goods heading, Construction was +11K on the back of +14.1K in “Nonresidential specialty trade contractors” more than offsetting -5.7K declines in “Residential specialty trade contractors.” In a reminder that capital intensity is different than labor intensity, the needle barely moved on “Computer and electronic product manufacturing” of +1.5K. “Motor vehicles and parts” declined by -3.9K, “Machinery” was +0.4K. There is a tendency to forget secular declines in some sectors and product groups and the process of reallocation of payrolls to other areas of manufacturing. The numbers do not support the tariff promises on jobs to this point.

• Services payrolls ruled the delta payroll numbers and notably the “Big 2” of “Health care and social assistance” (+46.6K) and “Leisure and hospitality” (-61K) with -54.6K in “Accommodation and Food Services.” That “leisure” number is hard to explain to start the summer. Retail trade was -7.5K, and that one is easier to explain with many retailers getting hammered by tariffs and weaker consumers with PCE plunging in 1Q26 (see GDP 1Q26 Final: PCE Growth Plunge).

• For the unemployment rate math, it is always worth a look at the numerator and denominator in the Household Survey. We see a decline of -213K unemployed for a total of 7,094K and a 4.2% unemployment rate (7.094 unemployed/169.36mn labor force). The number of total employed declined by -507K to 162.26 million. The labor force declined by -720K. In other words, everything was shrinking.

• The average hourly earnings increase of 3.5% is not stacking up well vs. the 4% headline inflation numbers for both CPI and PCE in May (see Personal Income & Outlays May 2026: Bad Inflation, Balanced Spending 6-26-26, CPI May 2026: The 4% Rubicon 6-10-26). The 1Q26 GDP release posted a headline PCE price index for 1Q26 at +4.6% while the core PCE price index for 1Q26 was +4.4% (see GDP 1Q26 Final: PCE Growth Plunge 6-25-26). The story remains ugly for real earnings.

The JOLTS openings as detailed earlier this week show plenty of openings waiting to get filled as we move into the summer (see JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26). That said, the good news only becomes a reality when the “paycheck count” rises. Hires have not been as robust. In looking at “job openings” the variable of when the opening might get filled looms. There is always the question of what major variables will speed up staffing (tariffs and USMCA risk? Iran fallout and getting the MOU in effect? Fed policy, clarity? etc.).

One can make qualitative assessments on the mix of occupations reporting increases in payrolls, but the reported number at least still meets the “MO jobs, MO money” rule to support consumer spending volumes. Now the question is “How much money is left for discretionary spending after the effects of inflation and lower real wages?”

The monthly payroll adds/declines chart above starts in March 2022 with the end of ZIRP and the start of the tightening cycle. The bar chart tells an objective data story. The 2025-2026 period is not impressive. The same for 2024.

The payroll addition numbers in 2025 and 2026 include the only negative deltas on the chart since March 2022 with 6 months in the red during Trump 2.0. That long-term median of +162K includes a slice of the longest recession since the Great Depression, so it is not a high bar to clear. Since the Jan 2025 inauguration, Trump has exceeded the post-Jan 2009 median in a single month after the April and May 2026 revisions.

A glance back at the 2022 numbers offers a reminder of what a high rate of job adds looks like. Of course, the labor backdrop and immigration issues change the overriding variables.

The above chart plots the running job adds/declines since Jan 2009 against the unemployment rate, which at 4.2% would be considered full employment in past cycles. In the chart, we isolate the worst months of the COVID dislocations in the box for better visuals to capture the other periods.

The 4.2% U-3 is below the long-term median from Jan 2009 of 4.9%. Payroll has been struggling somewhat in relative terms, but history is very kind to 4.2%. If the 2025-2026 frame of reference for payroll additions is 2024 (not a good jobs year) then the 2025-2026 numbers are solid (not great). If we compare 2025-2026 monthly adds to the 2022-2023 period, the current job add run rates are weak.

The above chart updates the time series for the U-3 unemployment rate and U-6 structural underemployment rate across the years from 1994.

As a reminder, the U-6 metric is defined with the numerator as “total unemployed + persons marginally attached to the labor force + total employed part time for economic reasons.” The denominator is “civilian labor force + workers marginally attached to the labor force.”

The U-6 is the structural underemployment metric that is always useful to watch. To start 2025, the U-6 rose sharply in Feb 2025 to 8.0% from 7.5% in Jan 2025. The U-6 jumped to 8.7% in Nov 2025 from 8.1% in Sept 2025.

The current 7.9% marks a decline from 8.1% in May and 8.2% in April. That is good news. The U-6 is well above the 6% handles seen in spring of 2023. The U-6 is still below the median from 1994 of +9.3%, which notably includes the post-crisis shock and the longest recession since the Great Depression.

The time series above updates the U-6 minus U-3 differential as a measure of relative employment quality and to flag risks of major dislocations in large swaths of the economy (think oil patch collapse in the late 1980s, tech bubble imploding into a weak 2001-2003, and financial services and automotive meltdown in 2009).

The current 3.7% differential is below the long-term median of 4.0%. The job ranks are still vulnerable now with the Iran war effects easing but still flowing into hiring decisions and anxiety around where energy costs and raw materials go from here as working capital cost inputs get absorbed. The feedstock costs have been ugly until the recent adjustments in more than just oil. Iran is looking good to get settled, but “it ain’t over ‘til it’s over.”

Industry fundamentals (notably on the demand side) and FOMC policy planning remain a complicated handicapping exercise. The recent rising rate of job adds was clearly favorable but do feature some of the occupations in services where major swings come easily and multiplier effects are limited. The AI wildcard will remain a critical X-factor for where payrolls head in Services especially.

Just because there is record capex and fixed investment does not mean it will necessarily translate into higher payrolls. That is a flawed assumption and varies by industry. Even in tech, software and SaaS-based services companies have taken a beating for a reason even if the sell-off is excessive and exaggerated.

There is also the issue of tariff burdens and what “tariff mitigation measures” get taken in headcounts from tech to natural resources and how that flows into industrials and manufacturing. The trade-off of capital and labor is still alive and well with negative real wage growth not helping.

The above chart updates total payroll vs. the unemployment rate. The trend needle has not moved much in 2026 and has been in a narrow range. More bodies with more paychecks are always a good thing. Meanwhile, the Household data pushes back on the Establishment Survey in terms of the direction of total employed heads.

The trick from here is how the consumer deploys their paychecks and whether the zero-sum realities of household budgets undercut spending. The PCE line in the GDP accounts is a critical driver of growth and negative real wage growth. In reality, this is a soft leading indicator for spending or wage demand pressure.

That PCE growth represents 68% of GDP and has been a worrisome trend in 2026 (see GDP 1Q26 Final: PCE Growth Plunge 6-25-26). You never hear the talking heads in the White House (notably Hassett) discuss the weak PCE growth that is well below what we saw in 2024 when it was near 4.0% for the last few quarters (back when the country was “dead” per Trump). Numbers are objective, but the adjective-heavy crowd avoids them.

The above chart updates the total payroll numbers vs. job openings. JOLTS data had been recovering with job openings solid (see JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26). Management teams have a lot of moving parts to factor into planning whether quantitative or qualitative before they fill the openings.

The final IEEPA decision from SCOTUS came in against Trump, but he was prepared to start slapping on tariffs under Section 122, 232, and 301. That continues given Trump’s priority of maximizing tariff revenue no matter how contrived and specious the grounds. My personal favorite remains the Section 232 national security tariffs for upholstered furniture. The needs for a good cushion are critical to US defense (!?).

The next leg of the tariff process is well underway on Section 301 tariffs with more tariffs being set on the basis of inadequate measures by trade partners to protect against “forced labor.” Trump’s deep concerns for the oppressed workers of the world is a new focal point. Those tariff actions will create more trade partner strife with the EU and Asia. The “labor” grounds were used to be in compliance with legislation that allows the White House to set the tariffs.

The USMCA is up for review as of this week, and that is already starting out ugly with Trump recently bringing out his “51^st state” trash talking even as MAGA stokes the fires for Alberta secession. Trump has already stated it will be renegotiated or terminated. His view on the US “needing nothing from Canada” is belied by facts, the private sector purchasing histories, and in some cases the resource demand requirements. Not to get biblical, but fertilizer without potash is tricky (like “bricks without straw”?).

Meanwhile, the EU diplomatic setbacks and trade relations have been downright ugly and got worse after Iran. NATO appears to be in the crosshairs. Trump has threatened 100% tariffs in recent days to retaliate against any taxes on digital services. Trump lost his one remaining friend in Italy’s Meloni recently. The “other dictator wannabe” (Orban) was given his walking papers.

The trade flows have been looked at in many past commentaries (see Trade Deficits: The Moving Parts and Macro Goals Matter Most 6-24-26, Meanwhile…Back in Economics and Tariffs 3-2-26, US Trade with the World: Import-Export Mix 2-25-26). The US has a goods trade surplus with Canada ex-oil. Canada is also the leading export market for almost 3 dozen US states. Those states, including every central and norther swing state, might have something to say about that…perhaps in midterm elections.

The big worry back in March was fear of stagflation – something not seen since the 1980-1982 double dip under Volcker. That has subsided in recent weeks despite the ugly inflation numbers. It would take a massive setback in US-Iran escalation risks to change that.

The headlines around multiple supplier chains have been covered in other research, but fertilizer was one that aims directly at food while oil aims at just about everything from the gas pump to delivery costs, raw materials, and leisure and travel (airfare).

The Strait of Hormuz disruption headlines highlighted the threat to semiconductor production while some customers could see IT budgets slammed. The tech valuations will remain subject to second-guessing, but it would take a lot to go wrong to derail impressive tech investment trends. Taiwan is arguably more important than Iran on that front. For Taiwan, the priority is don’t piss off China and their one China policy (see Taiwan: Stakes are High, US Awareness is Low 5-17-26, US-Taiwan Trade: Risks Behind the Curtain 2-1-26, Taiwan: Tariffs and “What is an ally?” 7-20-25).

With so many bad headlines in private credit, the idea of financial stress and the need to be cautious on spending/capex will be an issue to be played out. That means the consumer sector is likely to be facing more risk ahead even with these balanced payroll numbers. Inflation and the lowest savings rate since the inflation peak of 2022 is a metric that needs to be watched over the summer and into the fall.

The overall economic impact of tariffs has been far less than feared given the reality that most trade partners backed down in 2025. That still could change in 2026 with the latest wave of Section 301 attacks on supplier chains and trading partners. There is always the chance that Trump might push Canada and Mexico too far and the same for the EU.

See also:

JOLTS May 2026: Openings Flat, Hires Down, Layoffs Up 7-1-26

Music to Ponder: Hope Rising or Blood Simmering? 6-30-26

The Election Gambit: Economic Risk and Policy Uncertainty 6-29-26

Market Commentary: Asset Returns 6-28-26

JD Vance and Nixon History: Clueless 6-27-26

Personal Income & Outlays May 2026: Bad Inflation, Balanced Spending 6-26-26

New Home Sales May 2026: Weak Volumes, Stable(ish) Prices 6-25-26

GDP 1Q26 Final: PCE Growth Plunge 6-25-26

Trade Deficits: The Moving Parts and Macro Goals Matter Most 6-24-26

Market Commentary: Asset Returns 6-21-26

The FOMC Dance: Will Warsh and Trump Find a Rhythm? 6-17-26

Housing Starts May 2026: Weaker for both Single Family and Multifamily 6-16-26

Industrial Production May 2026: Steady, Balanced Utilization Levels 6-15-26

Geopolitical risk: Trump’s Nuclear Saber Rattling? 6-14-26

Producer Price Index May 2026: Too Many “Since 2022” References 6-11-26

CPI May 2026: The 4% Rubicon 6-10-26

Remembering D-Day: June 6, 1944

Employment May 2026: Big Rebound, Low Multiplier Bias 6-5-26

The Fall of CBS 6-3-26

Retail Signal Read Part Deux 6-1-26

Retail Equity Comps: Looking for Signals 5-26-26

• The JOLTS numbers come at a 1-month lag, and the small moves overall do not signal much to rattle the steady-as she-goes mediocre payroll trend that dovetails with a +98K set of ADP numbers released today. The overall trend in the 2026 numbers shows resilience even if unimpressive in post-COVID cyclical context. The numbers beat the weak 2025 performance. Tomorrow brings the full June payroll report.

• The JOLTS lines for May show job openings barely budged at +9K MoM to 7.59 million, which is +3.9% vs. May 2025. Hires were down -45K to 5.17 million, which was down by -3.0% YoY. Layoffs were up by 41K in May MoM to 1.71 million which is +2.2% YoY. Quits were up by 22K with the Quits rate flat at 1.9%.

• A good exercise in JOLTS is watching the occupation lines and notably for signs of openings and job expansion in the Manufacturing disciplines. Those numbers test the theory on tariffs being a policy that would bolster payroll and investment in durables and nondurables. So far, we see some signals in JOLTS with Manufacturing openings up by 6.6% in May vs. April 2026 but up even more by 32% YoY.

• The real answer on jobs (vs. unfilled openings) comes in the monthly payroll counts that measure actual headcount net of all other moving parts. We get that tomorrow. The ADP numbers released today with +98K in private sector adds were only +2K for Goods while posting +96K for services.

• From a FOMC policy standpoint, the jobs numbers this week are forecasted to be reasonable (FactSet cites a 100K median estimate ahead of the number) after a bad month for inflation metrics and constant back and forth on oil. On Iran, it is easy enough to find aggressive calls for sharply lower oil or in contrast renewed escalation against Iran by the US. The oil market as we go to print shows WTI just above $68. The CME FedWatch odds as of midday still see 0% chance of 1 cut by the Dec 2026 FOMC meeting set against 39.1% odds of 1 hike, 33.2% of 2 hikes, and 10.9% for 3 hikes. The odds of “no change” are now only 16.4%. That is not pretty.

The above time series plots job openings across the timeline from 2007 to current. May 2026 was a mild month after a busier April. The high of 12.2 million off the lows of 4.6 million at the peak of the COVID panic are dramatic. Recent periods had been soft before the April 2026 bounce of +731K back to 7.6 million. Openings are running well above the long-term median (5.94 million).

The total increase in job openings in May of +9K was underwhelming and included a -115K decline in “Health care and social assistance.” In contrast, “Leisure and hospitality” posted a +95K increase. Each month we can see major moves in these lines, which have been dominant drivers of monthly payroll trends. It is a safe statement that these lines are not major macro multiplier effect lines (even if a job and paycheck are always a good thing for the economy).

The Manufacturing openings, which are important signals on the long-desired goal of rebuilding and reshoring, posted some constructive openings numbers of +33K for Manufacturing with +20K for Durables and +13K for Nondurables. Durables are +6.0% MoM and +29.7% YoY. Nondurables were +8.0% from April and +36.7% YoY. That manufacturing job openings trend was a good sign, but the net filling of jobs will require those numbers to flow into the payroll lines. Hires in May for Manufacturing were -1K. Durables were +5K and Nondurables were -6K.

Employers will need to “pull the trigger” and the fate of the Iran MOU and the USMCA could play into those decisions.

The above chart plots Hires vs. Layoff/Discharges on a SAAR basis. Note: we remove the COVID numbers from several charts to support the visual value for “normal” periods. We comment on COVID history at the end of the note.

Hires declined by -45K, which is much lower than the decline posted in April of -320K. Layoffs/discharges rose by +41K in May after April saw a MoM layoff decline of -217K from March. The hires YoY declined by -158K or by -3.0%. Layoffs YoY rose by 37K or by 2.2%.

While we are in an expanding economy, the annual GDP growth of 2.1% in 2025 had lagged 2024’s 2.8%. The 1Q26 GDP growth rate was boosted in the final numbers to 2.1% GDP growth, but PCE growth remains in the tank for both Goods and Services (see GDP 1Q26 Final: PCE Growth Plunge 6-25-26).

The above chart updates the ratio of Hires to Layoffs/Discharges. The relationship stands at 3.03x, above the long-term median of 2.92x from 2007. The post-2007 period includes the effects of the longest recession since the Great Depression (Dec 2007 – June 2009) followed by the longest expansion in history from June 2009 to COVID (Feb 2020), which brought a very brief 2-month recession wrapped around a wild swing in pandemic employment.

The above chart plots Hires vs. Total Separations on a SAAR basis. Separations include Quits, Layoffs/Discharges, and “Other Separations.” Total Separations rose by +63K vs. April 2026 and were lower by -187K YoY. We typically do not find “Total Separations” particularly interesting as a multi-line net number.

The small rise in Separations MoM includes a small increase in layoffs of +41K combined with a small increase in “Quits” of 22K. One theory is that quits signal relative confidence in finding a job on the other side of quitting. Quits are down by -222K YoY. The confidence factor is not looking good.

The Hires minus Total Separations differential is plotted above. The small decline in Hires in May of -45K came after a bigger decline in hires of -320K in April vs. March.

The net number above has moved notably lower in recent months and dipped into the negative range in Feb 2026 before bouncing back into positive range in March and April. The differential of 69K is below the long-term median of +174K.

The time series for Total Quits as a % of Separations (SAAR basis) was 60.1%, slightly above the long-term median of 58.1%. The classic “Quits Rate” is measured by Total Quits as a % Total Employment, and that metric was unchanged on the month at +1.9%, flat to April 2026. The Quits rate is also down YoY from 2.1%.

The bottom line…

The JOLTS numbers for May cannot be used by UST bulls to make a case for easing, which is pretty much impossible now anyway unless you are Hassett and threw out your fact and concept book.

The long-suffering bull flattener advocates who were worried about oil are less worried for now, but the Iran deal is by no means printed. There are rumblings this week of fresh escalation, and that is hard to ignore just as it is hard to embrace. In addition, the effects of the massive oil and refined products inventory drawdown are not clear yet this summer with the China X factor on when it might start restocking more aggressively.

NOTE ON COVID DISTORTIONS

The Hires vs. Separations time series make for interesting numbers but tough charts to plot visually given how much the spike in Separations/Hiring during COVID distorted the numbers from March 2020 to June 2020. The swings literally were off the charts. For presentation purposes, we adjust the charts above to exclude the raw data for those months to get a better vantage point on somewhat more normal times. Compared to COVID, the credit crisis seems “normal” in terms of the job count moves.

For disclosure purposes, Separations across March 2020 (16.3 million), April 2020 (11.6 million), May (4.7 million), and June (5.2 million) were running against Hires in March (5.2 million), April (4.0 million), May (8.1 million), and June (7.4 million). We remove those from the charts to get better scale visuals on the periods that precede and follow as the market saw 50-year lows in unemployment in 2022. Wild swings were experienced by all as industries saw shutdowns and layoffs in the COVID recession. The long-term medians from 2007 to 2022 for Hires and Separations were very close.

Almost 28 million Separations combined in March-April 2020 as a brutal reminder of that period.

See also:

Music to Ponder: Hope Rising or Blood Simmering? 6-30-26

The Election Gambit: Economic Risk and Policy Uncertainty 6-29-26

Market Commentary: Asset Returns 6-28-26

JD Vance and Nixon History: Clueless 6-27-26

Personal Income & Outlays May 2026: Bad Inflation, Balanced Spending 6-26-26

New Home Sales May 2026: Weak Volumes, Stable(ish) Prices 6-25-26

GDP 1Q26 Final: PCE Growth Plunge 6-25-26

Trade Deficits: The Moving Parts and Macro Goals Matter Most 6-24-26

Market Commentary: Asset Returns 6-21-26

The FOMC Dance: Will Warsh and Trump Find a Rhythm? 6-17-26

Housing Starts May 2026: Weaker for both Single Family and Multifamily 6-16-26

Industrial Production May 2026: Steady, Balanced Utilization Levels 6-15-26

Geopolitical risk: Trump’s Nuclear Saber Rattling? 6-14-26

Producer Price Index May 2026: Too Many “Since 2022” References 6-11-26

CPI May 2026: The 4% Rubicon 6-10-26

Remembering D-Day: June 6, 1944

Employment May 2026: Big Rebound, Low Multiplier Bias 6-5-26

The Fall of CBS 6-3-26

JOLTS April 2026: A Modestly Positive Turn 6-2-26

Retail Signal Read Part Deux 6-1-26

Retail Equity Comps: Looking for Signals 5-26-26

• The top-down macro picture for new home sales still shows weakness, mortgage rates are high and buyer confidence is low. The derailed housing legislation this past week was more for political value than a material near term catalyst, but homebuilders saw a rally regardless with KBH earnings offering some guidance reassurance even with YoY margins lower.

• The single family new home sales trends in May posted -7.3% MoM and -6.8% YoY. The results show both the South region (60% of sales volume) and the West (20% of total) down MoM and YoY. The Midwest (14% of total) was positive MoM but down YoY with the small Northeast market (6% of total) in the positive range. The median sales price of $424.9K shows the stubborn and resilient home price backdrop with an increase MoM from April’s $416.5K and $424.8K in May 2025.

• The free cash flow generation strength of homebuilders did not escape the notice of Berkshire Hathaway (BRK) when it acquired Taylor Morrison. BRK also owns a major real estate brokerage leader with HomeServices of America. We have seen Japanese building companies acquiring major US builders/suppliers such as M.D.C. Holdings and Tri Pointe. The US is in a weak part of the housing cycle but with a favorable secular outlook.

• The builders are at a crossroads at this point where mortgages are in part tied to oil and yield curve steepening risk while inflation trends see many equity players looking past the current slowdown and the 6.5% mortgage rates. The seasonal peak will pass by quickly. A big question is “Will inflation threats ease? (see Producer Price Index May 2026: Too Many “Since 2022” References 6-11-26, CPI May 2026: The 4% Rubicon 6-10-26).

The above chart updates the new single family home sales series from 1963, and the current 580K (SAAR) is only slightly better than the grim Jan 2026 number (576K revised). The 580K is the second worst number over the past year with only Jan 2026 worse. The volumes are below the long-term median but materially below the 1980s/1990s.

The median of 989K in the housing boom/bust cycle from 2001-2009 is almost 70% higher. As we look back to the peak of the housing bubble, we see 1389K in July 2005 at well over 2x the May 2026 volume. The COVID panic buying and relocation spree in Aug 2020 saw sales of 1036K as a wild period for new home sales and home starts in a ZIRP market with very low mortgage rates.

The above chart plots the share of total home sales (new + existing) that were captured by the “new home” builders. We see the share is now at 12.2% vs. the long-term median of 11.6%. When inventory is scarce, the right home at the right price wins. The challenge overall for new home sales has been mixed for builders by region. Major homebuilders generally continue to report gross margin compression in 2026 and guide to similar expectations for the year.

The market edge favors builders vs. existing home sales (note: existing is still the vast majority of sales volume). The homebuilder has the ability to use incentives and financing support (see Existing Home Sales May 2026: Slow Rise Despite Rates 6-11-26).

Given the mortgage rate headwinds undermining volume in the existing home sales market whether “golden handcuffs” or a challenging monthly payment bar to clear for many, the shortage of existing housing inventory at economic all-in costs (price and mortgage rates) has been a recurring drag in that side of the home sales tally. In new home sales, the gap between the expectations of the seller and buyer is easier to bridge through the incentive programs or the ability to offer variations in home design and specs to make a transaction work.

D.R. Horton as the #1 US homebuilder offers a useful microcosm of the new home challenges (see D.R. Horton: Financial Powerhouse Despite Cyclical Softening 5-20-26). The 6% handle mortgage rates have been a struggle and had moved briefly as high as 6.75% before easing back to the current 6.5%.

The new home sales volumes are softer even if that can vary by region and product tier. On the other hand, the prices posted this month looked to be in a stall which is modestly out of line with some of the color we hear from major builders on prices with KB Homes and Lennar. Those two bellwethers posted lower prices for the recent quarter. Average Selling Prices at the builder level come with the asterisk of product mix and region. The builders face the reality that incentives are still a material part of the builders’ selling strategies.

The mid 6% handle mortgage rates are not offering relief on monthly payment pressures and affordability and leave some marginal buyers on the wrong side of the divide. This week saw 30Y mortgage rates in the 6.5% area (Mortgage News Daily).

The 10Y UST is the key benchmark for the direction of 30Y mortgages and that has been moving in the wrong direction YTD. The oil wildcard could ease pressure on the longer end but the CPI, PCE and PPI inflation metrics – including this week for PCE and the 1Q26 quarter 4% handle PCE inflation – are still showing sustained inflation pressure (see GDP 1Q26 Final: PCE Growth Plunge 6-25-26).

The median home price time series above tells a simple story that prices had been under modest pressure after a period of record highs and a long stretch over the $400K threshold with a few dips below the $400K line.

As noted above, the move higher to $424.9K in May 2026 rose off the $416.5K April price. Lower average selling prices were seen in the first and second quarters for a sampling of major builders as well as in the new home sales releases. The trend could be explained in part as a matter of geographic mix given the South’s lower ASP mix, but the “South” by itself has a very wide range as well. Meanwhile, the West rose with its traditionally higher ASP mix which can shift around California share.

The above chart gives a different visual angle on the median new home sales prices from early 2022. That is a lot of $400K handles with some sub-$400K outliers. The current $424.9 K posted is well above the $393.1K in March.

The price metrics can shift with regional mix as well as home price tiers and related supply issues. The affordability question is still intertwined with the monthly payment pressures from mortgages. It is about more than price.

The time series above updates the new single family home sales across the cycles since 1973 for the #1 and #2 regions of the South and the West. The 350K for the South is around 60% of the total of all single-family new home sales (SAAR) and marks a sequential decline of -4.1% from April 2026 and is down by -5.4% YoY. The West at 117K is 20% of the total. For the month, the West was down by -26.9% sequentially and by -17.0% YoY.

The timeline for new home sales for the smaller Midwest and much smaller Northeast market is detailed above. The Midwest (14% of total) was +16.2% sequentially and -3.7% YoY. The Northeast market (6% of total) was +3.0% sequentially and +17.2% YoY.

See also:

GDP 1Q26 Final: PCE Growth Plunge 6-25-26

Trade Deficits: The Moving Parts and Macro Goals Matter Most 6-24-26

Market Commentary: Asset Returns 6-21-26

The FOMC Dance: Will Warsh and Trump Find a Rhythm? 6-17-26

Housing Starts May 2026: Weaker for both Single Family and Multifamily 6-16-26

Industrial Production May 2026: Steady, Balanced Utilization Levels 6-15-26

Geopolitical risk: Trump’s Nuclear Saber Rattling? 6-14-26

Producer Price Index May 2026: Too Many “Since 2022” References 6-11-26

CPI May 2026: The 4% Rubicon 6-10-26

Remembering D-Day: June 6, 1944

Employment May 2026: Big Rebound, Low Multiplier Bias 6-5-26

The Fall of CBS 6-3-26

JOLTS April 2026: A Modestly Positive Turn 6-2-26

Retail Signal Read Part Deux 6-1-26

New Home Sales April 2026: Slow Start to Spring 5-28-26

PCE Inflation: Income and Outlays April 2026 5-28-26

GDP 1Q26 Second Estimate: Shrunk in the Dryer 5-28-26

Retail Equity Comps: Looking for Signals 5-26-26

D.R. Horton: Financial Powerhouse Despite Cyclical Softening 5-20-26

• The soft housing season continues with total starts down by -15.4% MoM and -8.7% YoY. Multifamily was down by -41.6% MoM and -12.3% YoY. Single family was milder with a -1.9% decline MoM and -6.7% YoY.

• The critical South (58% of single family starts) and West (20% of single family) and #2 market in the West were both down MoM and YoY. The smaller Midwest and Northeast markets were both up MoM. We already saw a slow start to spring in new home sales, and the planning process from here is not backed up by an optimistic tone from the builders (see New Home Sales April 2026: Slow Start to Spring 5-28-26).

• Mortgage rates remain a drag in housing affordability and a strain on monthly payment math as 6.6% mortgage rates reflected the unsettled post-Iran UST curve dynamics at a time when consumer confidence was in the doldrums, PCE growth in the GDP accounts had faded to 1.4%, and the household savings rate had plunged. Residential investment in 1Q26 posted a -6.2% contraction (see GDP 1Q26 Second Estimate: Shrunk in the Dryer 5-28-26, PCE Inflation: Income and Outlays April 2026 5-28-26).

• This week brings the first Warsh FOMC meeting on Wednesday with mid-6% mortgage rates waiting for the prevailing winds to shift with the Iran “deal in process.” The UST market is not favoring easing through the Dec 2026 FOMC meeting with FedWatch easing odds of 1 cut at 0% as we go to print. In contrast, the odds of 1 hike are at +42.7% followed by 40.6% probability for unchanged. Even 2 hikes post odds of 14.7% and 3 hikes at 1.9%. Warsh may not offer much relief without the votes.

The above chart offers a clear reminder of the wild single family residential construction cycles across the decades. With favorable demographics for housing demand, the current starts run rate of 882K is still well below the long-term median and below all the timeline medians posted above except for the “crisis to current” timeline starting in Jan 2009 at 829K.

The current backdrop includes mortgage rate pressures on the affordability of monthly payments that are not likely to get much better from here in the peak housing season. That comes after seeing mortgage rates flirt very briefly with crossing below the 6.0% line in Feb 26, just before the Iran War. This past week hit the 6.75% area before the modest rally of the UST curve to 6.54% per Mortgage News Daily.

Single family starts were soft in relative terms vs. headline total starts dragged down by a grim month for multifamily (detailed further below).

The above chart plots total permits and total starts on a Not Seasonally Adjusted (NSA) basis. NSA is viewed as closer to what is going on in the trenches without the SAAR model assumptions.

For May 2026, we see NSA total permits down by -4.2% and single family permits down by -6.8% YoY. For MoM, total permits were -6.6% with single family permits down by -6.9% MoM.

For total starts and single family starts on an NSA basis, we see total starts down by -15.8% MoM and single family NSA starts lower by -1.2% MoM.

The above plots the single family starts by region (NSA). On a MoM basis, the critical South region (totals over 49% of total NSA starts and over 55% of single family starts) was down slightly in single family by -1.2% MoM and down by -7.0% YoY. The West as the #2 single family market (20% of total) was down MoM by -4.7%. The Midwest region MoM in single family was +16.1% with the small Northeast market at +22.9% MoM. The YoY NSA starts were mixed with the South and West both lower among the big two regions. The Midwest and Northeast were both higher.

The above chart updates running multifamily starts. At +284K (SAAR), May 2026 declined by -41.6% MoM and by -12.3% YoY. The 284K is well below the long-term median of 339K, below the median from Jan 2009 to current (345K), and below the median from 2000 to 2008 (296K).

The 1960s was a period of explosive growth for multifamily with the back end of the baby boom, the postwar rise of urbanization, and the high racial migration from the South to the North all part of the multifamily tailwinds. Immigration also played an important role.

The above chart updates Multifamily permits (SAAR). The 474K in May 2026 multifamily permits declined by -3.5% MoM and was up by +3.0% YoY.

The bottom line on home starts as we move further into the peak selling season is that 2026 is shaping up as a mediocre year at best for homebuilders. This is consistent with the guidance we are getting from the major homebuilders.

See also:

Industrial Production May 2026: Steady, Balanced Utilization Levels 6-15-26

Market Commentary: Asset Returns 6-14-26

Geopolitical risk: Trump’s Nuclear Saber Rattling? 6-14-26

Producer Price Index May 2026: Too Many “Since 2022” References 6-11-26

CPI May 2026: The 4% Rubicon 6-10-26

Remembering D-Day: June 6, 1944

Employment May 2026: Big Rebound, Low Multiplier Bias 6-5-26

The Fall of CBS 6-3-26

JOLTS April 2026: A Modestly Positive Turn 6-2-26

Retail Signal Read Part Deux 6-1-26

New Home Sales April 2026: Slow Start to Spring 5-28-26

PCE Inflation: Income and Outlays April 2026 5-28-26

GDP 1Q26 Second Estimate: Shrunk in the Dryer 5-28-26

Retail Equity Comps: Looking for Signals 5-26-26

D.R. Horton: Financial Powerhouse Despite Cyclical Softening 5-20-26

• The industrial production and capacity utilization trends offered some cyclical reassurance by showing the capex boom seen in the GDP lines and resilience in the consumer durables sector (16M handle light vehicle expectations in 2026) has offered macro support. The overall mix of factors has helped ease some of the recurring and justified worries around the consumer (see GDP 1Q26 Second Estimate: Shrunk in the Dryer 5-28-26).

• The +1.4% PCE growth in 1Q26 (through 2^nd estimate), plunging savings rates (see PCE Inflation: Income and Outlays April 2026 5-28-26), and eroding credit card metrics will keep macro watchers on edge. PCE remains around 68% of GDP and we get the final estimate for 1Q26 next week.

• The collective battering of tariffs on the durables sector cost structures and post-Iran energy cost hammering from industrials to households reminds everyone that it takes an “awful lot of awful” to drive a contraction. The capex cycles and well-known appetites of the US consumer “to consume” is hard to derail even with unsound (incoherent?) trade policies and top-down political instability.

• Inflation has been the main consumer worry, and the deal getting to the finish line is more important than Trump selling the story that it is a better deal than Obama’s (good luck) even before tabulating the damage on so many fronts.

• The best news in the industrial production mix was that the durables sectors we routinely detail in the charts ticked higher sequentially – even if minimal in some cases.

The above chart is somewhat of a regular replay of the history of the industrial production cycles across time from 1967 through today. We have covered much of this in the past, but we roll the historical recap forward for convenience. We get new readers and students all the time. It is a mini history.

As an “old guy” who covered such industries as autos and steel credits back in the 1980s (and worked on a few audits of resources and energy companies) and came of working age in the first stagflation wave and oil spikes of the 70s and early 1980s, we see much of the “old and new” these days to consider. Cyclical change and secular trends always get mixed in, and the evolution (or collapse) of industries is not new.

The current 75.7% for total manufacturing is well below the long-term median of 78.5% and below the post-COVID median of 76.2%. The industrial production and capacity utilization numbers are among many metrics that take the label of “greatest economy in history” off the table right now. Whether GDP growth or payroll trends, the current economy is a bottom quartile economy when the growth of the 1980s and 1990s are factored in (see Presidential GDP Dance Off: Clinton vs. Trump 7-27-24, Presidential GDP Dance Off: Reagan vs. Trump 7-27-24).

The wildcard for this current cycle is the scale of the fixed investment that is now ramping up around the AI ecosystem. The multiplier effects cut across the full array of products and services and extend across many major trade partners with Taiwan at the top of the list (see Taiwan: Stakes are High, US Awareness is Low 5-17-26, US-Taiwan Trade: Risks Behind the Curtain 2-1-26).

The consumer sector and PCE have been unimpressive, but fixed investment is now soaring (see 1Q26 GDP Advance Estimate: Consumer Fade, Investment Boom 4-30-26). If you like comparing numbers (not a Washington thing) as opposed to spewing partisan adjectives, Trump 1.0 did not even frame up all that well vs. Carter and Biden – let alone the 1980s and 1990s (Gut Checking Trump GDP Record 3-5-25, Trump’s “Greatest Economy in History”: Not Even Close 3-5-25). Trump 2.0 is off to a slow start on GDP growth and payroll additions relative to the earlier glory years of the 80s and 90s.

A brief cyclical lookback on replay…

The chart shows the material swings across expansion booms and busts. That includes the aftermath of some highly damaging oil spikes that brought on cyclical weakness and later saw capacity utilization plunge. There were a lot more structural changes underway in those cycles than just oil and gas price pressures.

The pace of industry restructuring was notably the case in the 1980-1982 double dip as well as the recession of late 1973 to early 1975 when the Arab Oil Embargo set off chain reactions that turned the post-1973 period into an ebb-and-flow of macro nightmares for inflation and the consumer. Currency trends and labor costs were going through major changes across many years.

The May 1975 low of 71.6% followed the first bout of severe stagflation that unfolded after the Arab Oil Embargo. The 1980-1982 double dip recession came after the 1979 inflation spike took off with the Iranian oil crisis.

Capacity utilization saw a 68.7% low in Dec 1982 as the economy was just coming off the recession trough. The first Gulf War came after the August 1990 invasion of Kuwait with capacity utilization hitting a low in March 1991 at 77.2%, which is above where capacity utilization stands now in 2026.

Bring on the tech boom and excess…

The age of tech and credit excess in the late 1990s brought some new swoons with 71.8% in Nov 2001 after the TMT meltdown and HY default wave rolled in. The Utilities and Power sectors and Telecom capex all took a beating in that time frame.

Then came the post-credit crisis low of 63.4% at the recession trough in June 2009. Mortgages and derivative excess caused a very real systemic panic and deep risk aversion from the Lehman Sept 2008 period and well into 2009. That period was famous for the bankruptcy and bailout of GM and Chrysler and how that reverberated across supplier chains from materials to components. The credit contraction was very real, and the recovery in payrolls was slow to unfold with the consumer hammered by housing sector pain.

COVID edged out the June 2009 utilization bottom with a record low of 62.6 in April 2020 and a wild 2-month recession. That pandemic period saw ZIRP, supply-demand imbalances and later the Russian invasion of Ukraine and ensuing oil spike that set off inflation and a tightening cycle that still did not trigger a 2022 recession. The Fed should get some credit for navigating that timeline even if late to the party.

Time for the new age transition to AI plus some old school crises…

As we detail below in the recession histories, the idea of what is low or high for capacity utilization in the context of corporate sector profitability is not as direct as one might think. Breakeven volumes, cost structures and pricing power are key drivers of profits. The tariff excess as a core Trump policy only makes that unit cost analysis more complicated as we head into a new round of energy related cost pressures in 2026. Material costs, operating costs for companies, and consumer discretionary household cash flow headwinds make for a tricky set of moving parts shaped by erratic geopolitical decisions.

The AI upside as well as the fallout and related fears is also a new variable in the mix that cuts across both the services and goods sectors. What AI will mean for productivity improvement vs. payroll contraction will be an ongoing test of theories. Even if AI proves true to the valuation promises and brings a “revolution” to the economy, many will also pay the price. Revolution is a term often associated with a body count (even if jobs and not KIA). We have been getting a taste in the recent SaaS services panic. Those SaaS services markets consume a lot of goods and have a lot of employees.

The above table breaks out the high-level groupings with total industry and total manufacturing posting a mix of positive and negative variances in May 2026. We include a “delta column” on the right.

Mining and Utilities were mixed for the month, but a rational expectation is that utilities will see more capacity added and more demand. The data center and power supply issue is more pressing and getting more political by the day in an area where there has been working class bipartisan anger around the side effects of such projects on power costs and water threats among other issues. That controversy has spread to Canada.

It may be local on a center-by-center basis, but it will find its way into an assessment of data center adequacy at some point for growth valuations, revenue models, and costs. Any sense of faltering optimism around volumes (e.g. international restrictions on AI), pricing power, and regulatory backlash or political risks (elections have consequences, etc.) could roil valuations.

We see Durables and Nondurables as the main events to track, and durables showed notable strength this month. The durables sector is especially important with all of the supplier-to-OEM multiplier effects. That also is the sector more meaningfully tagged by the Trump tariff policies.

The IEEPA SCOTUS setbacks and recent attempts by Trump to counterattack by creatively using existing tariff legislation is struggling in the courts. Trump goes to “Plan B” and “Plan C” in his attempts to cut Congress out of the tariff decisions. He is hanging his hat on Section 301. This week he threatened France with triple digit wine tariffs even without IEEPA. He seems to forget the EU works as a bloc.

Looking back from 2025 into early 2026, we see Manufacturing in a relatively narrow range and the same for Durables. Tariffs have not moved the production needle much so far, but that does not tell the profitability story on the tariff cost impact. Most people (outside the White House) know that buyers/importers write the check for the tariff, so that implies a higher breakeven volume or some offsetting action on other costs or pricing.

Those tariff impacts will only play out over time across working capital cycles. Pricing decisions are more likely to come at a lag given the White House pressures, so there is a lot more to play out in 2026 earnings seasons and in company color.

The inflation story has turned negative for the macro picture in 2026. The “good news, bad news” aspect of a resilient industrial sector is that higher input costs can lead to the exercise of pricing power that flows into inflation. That beats the stagflation alternative but will keep life challenging for the FOMC and “Team Warsh” (if he can assemble a supportive voting team). We get our first taste of Warsh this week.

The above table breaks out the details for the top 5 Durables lines and the two largest Nondurables lines. We include the capacity utilization deltas in the column on the right. We see positive moves across all the major durables industries presented with “Fabricated Metals” and “Motor Vehicles and Parts” making the more notable moves. The two major Nondurables lines were both lower with Chemicals down by more than Food, Beverage and Tobacco.

The above table updates the capacity utilization history for expansions and recessions. As we routinely discuss, the ability of companies to generate solid profits at lower capacity utilization in today’s markets relative to past cycles is tied to both automation and the evolution of low-cost global supplier chains.

Low-cost supplier chains are getting undermined by tariffs and are now facing supply chain headwinds from the Iran War energy effects and the supply-demand imbalances. The latest round of news on a “deal” will ease some worries along the supplier to customer chain, but there are always lags while more tariffs are rolling in.

The “AI story” and what it all means for productivity and headcount will be a big part of the risk analysis ahead. The natural outcome will be less jobs in a service intensive economy such as the US. The irony is that the most immediate impact on jobs has been in tech, but that can easily spread.

The above chart details economic expansion and recession averages and lines them up by height as a frame of reference. We see the current level on the left at 75.7%. The fact that the current capacity utilization is below numerous recession averages posted on the right side of the chart also scoffs at the recurring “Golden Age” and “hottest country” rhetoric.

In the context of the tariff priorities and reshoring ambitions, the slack capacity implied by the chart in historical context underscores that the analysis is a lot more complicated than just “build more plants” and “keep tariffs high” to force reshoring. That is a story told on an industry-by-industry basis. It gets into themes around pricing power, cost structures and sourcing risks (tariffs, etc.). These days the topical questions revolve around “AI winners and losers” in productivity and the relative ability to adjust and engage in tariff cost mitigation strategies.

The multiplier effects are important, but the relocation of supplier chains and OEM assembly relocation and retooling is by definition very slow to unfold given intrinsic lag times, tooling equipment, and contracts in place. Manufacturing jobs edged slightly higher this month on a MoM basis but remain lower YoY (see Employment May 2026: Big Rebound, Low Multiplier Bias 6-5-26).

There is also the fact that the cost of relocation has risen with all the tariff effects for materials, components, and qualified labor. Autos are the main relocation stories, but that is generally going to be tied to existing infrastructure and not a strategy of all-new greenfield plants. In the end, many companies can just wait for Trump to “move on” and revisit plans later.

The issues around the USMCA review and its fate effectively make planning much more difficult if not impossible to do with clear economic certainty on trade rules. Trump’s signaling that he may terminate the USMCA entirely regardless of any legal interpretations on whether his sole-actor decision is even legal. That adds more drama to a policymaking framework that does not lack drama in the best of times and even injects surprise endings.

See also:

Market Commentary: Asset Returns 6-14-26

Geopolitical risk: Trump’s Nuclear Saber Rattling? 6-14-26

Producer Price Index May 2026: Too Many “Since 2022” References 6-11-26

CPI May 2026: The 4% Rubicon 6-10-26

Remembering D-Day: June 6, 1944

Employment May 2026: Big Rebound, Low Multiplier Bias 6-5-26

The Fall of CBS 6-3-26

JOLTS April 2026: A Modestly Positive Turn 6-2-26

Retail Signal Read Part Deux 6-1-26

New Home Sales April 2026: Slow Start to Spring 5-28-26

PCE Inflation: Income and Outlays April 2026 5-28-26

GDP 1Q26 Second Estimate: Shrunk in the Dryer 5-28-26

Retail Equity Comps: Looking for Signals 5-26-26

Housing Starts April 2026: Soft Starts in Single Family 5-22-26

D.R. Horton: Financial Powerhouse Despite Cyclical Softening 5-20-26

• The spring season is bringing modest increases for May MoM and YoY. Inventory rose and median prices were higher YoY at $429.3K for total existing home sales and $434.3K for single family. The NAR cites improved YoY affordability indexes across all four regions.

• The UST curve has not been friendly at around 6.6% mortgage rates, and curve dynamics are still working against lower rates with odds heavily favoring 1 hike or no action with negligible odds of easing at this point. More oil price increases or inflation pressure in a US-Iran escalation would put further upward pressure on longer rates and mortgages.

• As we go to print, Trump says a deal is done, but that has become a punchline at this point. If it happens there could be some mortgage relief. The debates among industry experts on the lingering effects in the physical markets even with a “real truce” and open Strait are on balance still flagging a lot of oil and refined product price risk into the summer.

The above chart details existing home sales SAAR run rates by month from January 2023 to May 2026 at 4.17 million, up from 4.04 million. As a frame of reference, in 2022 market was posting 6 million and 5 million handle sales volumes in the first half of that year.

The early read on peak selling season ahead is off to a guarded start with mid-6% handle 30Y mortgage rates remaining a headwind, and the consumer sector shaky and less confident this year than last spring as inflation and payroll anxiety remain factors in 2026.

The recent numbers look more like the late 2023 period when mortgages had peaked (see Existing Home Sales Dec 2023: Rerun of Multi-Decade Low 1-19-24). The 30Y mortgage rates have moved within a 200 bps range since the Oct 2023 peak when Freddie Mac 30Y hit 7.8% and many mortgage offerings were near 8%.

The modest move in existing home sales is set against a fairly grim set of numbers from the CPI and PPI releases (see Producer Price Index May 2026: Too Many “Since 2022” References 6-11-26, CPI May 2026: The 4% Rubicon 6-10-26). The PPI and CPI headline inflation numbers spell back-to-back trouble even if the markets are not reacting much to the sustained evidence of rising inflation. The new Fed Chair will be somewhat hamstrung by economic reality and the need to convince a committee in the voting process.

The inflation metrics and Iran War fallout remain critical to the consumer story line with savings rates plunging to 2Q22 levels. We see consumers continuing to “show up” as framed in the monthly income and outlays reports (see PCE Inflation: Income and Outlays April 2026 5-28-26), but consumers remain vulnerable as evident in credit card quality metrics and balance trends.

PCE growth rates in the GDP accounts comprise 68% of GDP, and that PCE line has clearly slowed down in the 1Q26 GDP reports at 1.4% in the 2^nd estimate GDP (see GDP 1Q26 Second Estimate: Shrunk in the Dryer 5-28-26). That is weaker, but it is not a contraction.

Trying to handicap UST levels and shapeshifting has been a challenge when we started the year with a lot of focus on easing and the new FOMC regime. Mortgage rates have been a headwind, and gauging what the FOMC might do is important even if the 10Y UST is what drives mortgage rates.

The odds as shown in the FedWatch CME models frame the odds of a single fed fund easing by the FOMC Dec 2026 meeting as well below 1%. By Thursday evening, the odds of 3 hikes (2.9%) are higher than the odds of 1 cut (0.6%). The high odds FOMC scenarios point at 1 hike (42.9%) or no change at 40.2% and 2 hikes at 14.4%. These odds whip around with Iran headlines and inflation and payroll releases.

The above chart shows the sales volume delta by price tier for May 2026, and we see 4 of the 6 price tiers posting positive growth with only the two lowest price tiers posting declines. That was the same mix of deltas as last month. Note: We use “not seasonally adjusted data” for this chart.

For existing home sales, the monthly payment math is still not working well for those looking to cash out, move up, or simply relocate. Expectations for a bull flattener in the UST market that would translate into low to mid 5% mortgage rates have been thwarted and are highly unlikely to resurface. It is a very challenging leap of faith to see any probability of the conditions for easing getting better from here given steady payrolls and rising inflation.

An easing would require a macro backdrop that hits payrolls and homebuyer confidence to make the FOMC move to ease. Such a move by the Fed could also drive a UST steepener subject to the underlying reasons used by the FOMC. The oil spike and price swings since Iran plus the documented inflation pressures will make life a challenge for Warsh. The years of “repricing of the household basket” under Biden and again under Trump has made life a struggle for many and now we are looking at negative real wage growth.

The above chart shows the geographic mix of volumes and details on price mix by region. The South is the main event in single family volumes whether new or existing at almost 47%.

For the bar chart, we break out the mix for each region by price tier. For example, the South shows around 50% of its existing home sales volume in the $250K to $500K range and over 17% of its sales in the $100K to $250K bucket.

The high cost of homes in the West (notably California) is clear enough just by glancing at the bar chart with over 17% at prices over $1 million. The second highest in the $1 million club is the Northeast at over 11%.

We see a major concentration across the regions in the $250K to $500K although the $100K to $250K bracket for the Midwest stands at over 28.4%. The West shows a high share of 28.3% in the $500 to $750K bracket, which again underscores how expensive the West region price tags remain in national context.

The map explains what states are in each Census region. There is a very wide range of home price profiles in the West and Midwest states.

Inventory for total existing homes ticked higher MoM to 1.55 million units for +3.3% MoM and +0.6% higher YoY. Current inventory is well below longer term medians including 2.08 million for the post-1998 median. The median from Jan 2011 (homebuilding low) to current times is 1.76 million. In other words, existing home sales inventory remains low even if the level is materially higher than the stunning low of 850K of Feb 2022 ahead of the end of ZIRP and start of the tightening cycle in March 2022.

The existing home inventory balance had shown a steady rise off the sub-1 million lows of 2022. Inventory had risen to the 1.3 million handle range in 2024 before dipping back down to a recent low of 1.14 million to close out 2024. We bounced off those numbers in 2025 to get back above 1.5 million handles before the recent move lower to 1.2 and 1.3 million handles and then back to current levels above 1.5 million.

The above two-sided chart updates the trend line in total existing home sales vs. new single family homes. After some material disruptions in the data updates during the shutdown, the new home sales data is current again (see New Home Sales April 2026: Slow Start to Spring 5-28-26).

The above chart breaks out the timeline for existing single family only of 3.8 million vs. total existing home sales of 4.17 million. The 4.17 million total is well below the long-term median (from Jan 1999) of 5.21 million. The total of 3.8 million for single family is well below the long-term median of 4.63 million.

Existing single family growth was 3.5% sequentially and 3.3% YoY (SAAR). The lower line is ex-condo/ex-coops. We saw 370K in condo and coop sales in May 2026, up from 360K YoY and flat to 370K MoM.

The above chart updates the median price for existing single-family homes at $434.3K (vs. $429.3K total) after June 2025 hit a record $438.6K. The median price in May 2026 is dramatically above the $308K level back in Jan 2021 and $277K in Dec 2019 when mortgage rates were in a different zip code and closer to 3.7% for 30Y Freddie Mac.

The above chart shows another angle on the sales mix across the price tiers. We just lift the numbers off the monthly handout for single family homes released by the NAR each month. Higher price homes and wealthier buyers have had a better time across this cycle as the “K recovery” certainly applies in housing given the mortgage pressure on monthly payments.

The $250K to $750K range is comprised of two tiers that add up to almost 2/3 of the market with the $100K to $250K showing a big share in some of the Midwest states as detailed in an earlier chart. We also looked at the growth trends for each tier earlier. Lower price tiers declined while the top 4 tiers rose. The lower price tiers are more on the cusp of where affordability and mortgage eligibility could be strained at 6.6% area handle mortgage rates (today’s Mortgage News Daily survey).

See also:

Producer Price Index May 2026: Too Many “Since 2022” References 6-11-26

CPI May 2026: The 4% Rubicon 6-10-26

Market Commentary: Asset Returns 6-8-26

Remembering D-Day: June 6, 1944

Employment May 2026: Big Rebound, Low Multiplier Bias 6-5-26

The Fall of CBS 6-3-26

JOLTS April 2026: A Modestly Positive Turn 6-2-26

Retail Signal Read Part Deux 6-1-26

Market Commentary: Asset Returns 5-31-26

New Home Sales April 2026: Slow Start to Spring 5-28-26

PCE Inflation: Income and Outlays April 2026 5-28-26

GDP 1Q26 Second Estimate: Shrunk in the Dryer 5-28-26

Retail Equity Comps: Looking for Signals 5-26-26

Housing Starts April 2026: Soft Starts in Single Family 5-22-26

D.R. Horton: Financial Powerhouse Despite Cyclical Softening 5-20-26

• The massive “beat” vs. consensus on job adds weighed in at +172K for May. The release includes major upward revisions in March (+29K to +214K) and April (+64K to +179K). The unemployment rate was flat at 4.3%.

• The payroll additions are dominated by Leisure and Hospitality at +70K, Local Government at +55K, and Health Care and Social Assistance of +47.2K for a total of over +172K just on those three occupation lines. Those are not in the high “economic multiplier effect” category but more paychecks are intrinsically positive.

• “Goods” payroll additions of +28K included +17K in Construction, +7 in Manufacturing, and +4 in “Mining and Logging” (primarily E&P). An important note is that Manufacturing was lower YoY by -46K, which for now means the Golden Age onset for manufacturing has not arrived yet. Services rose by +92K, and Government by +52K for the Establishment Survey total payroll additions of +172K (92 Services + 52 Government + 28 Goods).

• The average hourly earnings increase of 3.4% is not stacking up well vs. the 3.8% CPI in April. Real earnings are also looking grim vs. recent PCE inflation numbers including +3.8% headline PCE and core PCE of 3.3% (see PCE Inflation: Income and Outlays April 2026 5-28-26). The 1Q26 GDP release posted a headline PCE price index for 1Q26 at +4.5% while the core PCE price index ticked slightly higher to +4.4% from +4.3% (see GDP 1Q26 Second Estimate: Shrunk in the Dryer 5-28-26). The story is ugly for real earnings.

• In the Household Survey, the report details a decline of -66K unemployed for a total of 7,307K (7.31 million) and a 4.3% unemployment rate (7.31 unemployed/170.1 mn labor force). The number of total employed rose by 149K to 162.77 million.

The JOLTS openings as detailed earlier this week show more of those openings getting filled as we move closer to the summer (see JOLTS April 2026: A Modestly Positive Turn 6-2-26). That is good news for the “paycheck count.” One can make qualitative assessments on the mix of occupations reporting increases in payrolls, but the reported number meet the “MO jobs, MO money” rule to support consumer spending volumes.

Consumer sentiment/confidence has been very low, but the material decline in savings rates can mean a range of things with either (or both) a desire to spend or “a need to borrow” on the list (See PCE Inflation: Income and Outlays April 2026 5-28-26). More jobs always help the backdrop. As of now, inflation exceeds wage growth. That is by definition bad.

The monthly payroll adds/declines chart above starts in March 2022 with the end of ZIRP and the start of the tightening cycle. The bar chart tells an objective data story. The revised +214K for March, revised +179K for April and May print of 172K along with the 4.3% unemployment rate are not only “not easing friendly” for the FOMC but the direction of oil and Iran and Gulf chaos could determine whether the backdrop is “hike friendly.”

As we go to print, the odds of 1 hike by the Dec 2026 FOMC meeting is 43.3% vs. 28.7% for no change. The odds of 2 hikes are up to 22.4%. The odds of 1 cut are +0.8%.

The payroll addition numbers in 2025 and 2026 include the only negative deltas on the chart since March 2022 with 6 months in the red during Trump 2.0. We are now at least seeing some numbers above the post-Jan 2009 median of 170K. That long-term median of +170K includes a slice of the longest recession since the Great Depression, so it is not a high bar to clear.

A glance back at the 2022 numbers offer a reminder of what a high rate of job adds looks like. Of course, the labor backdrop and immigration issues change the overriding variables.

The above chart plots the running job adds/declines since Jan 2009 against the unemployment rate, which at 4.3% would be considered full employment in past cycles. In the chart, we isolate the worst months of the COVID dislocations in the box for better visuals to capture the other periods.

The 4.3% U-3 is below the long-term median from Jan 2009 of 4.9%. Payroll has been struggling somewhat in relative terms, but history is very kind to 4.3%. If the 2025-2026 frame of reference for payroll additions is 2024 (not a good jobs year) then the 2025-2026 numbers are solid (not great). If we compare 2025-2026 monthly adds to the 2022-2023 period, the current job add run rates are weak.

The above chart updates the time series for the U-3 unemployment rate and U-6 structural underemployment rate across the years from 1994.

As a reminder, the U-6 metric is defined with the numerator as “total unemployed + persons marginally attached to the labor force + total employed part time for economic reasons.” The denominator is “civilian labor force + workers marginally attached to the labor force.”

The U-6 is the structural underemployment metric that is always useful to watch. To start 2025, the U-6 rose sharply in Feb 2025 to 8.0% from 7.5% in Jan 2025. The U-6 jumped to 8.7% in Nov 2025 from 8.1% in Sept 2025.

The current 8.1% marks a decline from 8.2% in April but an increase from 7.9% YoY vs. May 2025. The U-6 is well above the 6% handles seen in spring of 2023. The U-6 is still below the median from 1994 of +9.3%, which notably includes the post-crisis shock and the longest recession since the Great Depression.

The time series above updates the U-6 minus U-3 differential as a measure of relative employment quality and to flag risks of major dislocations in large swaths of the economy (think oil patch collapse in the late 1980s, tech bubble imploding into a weak 2001-2003, and financial services and automotive meltdown in 2009).

The current 3.8% differential is just below the long-term median of 4.0%. The job ranks are still vulnerable now with the Iran war effects flowing into hiring decisions, industry fundamentals, and FOMC policy planning. The recent rising rate of adds is clearly favorable but do feature some of the occupations in services where major swings come easily. The AI wildcard will remain a critical X-factor on where payrolls head in Services especially.

The above chart updates total payroll vs. the unemployment rate. The trend needle has not moved much in 2026 and has been in a narrow range. More bodies with more paychecks are always a good thing. The trick from here is how the consumer deploys that paycheck and whether the zero-sum realities of household budgets undercut spending. The PCE line in the GDP accounts is a critical driver of growth and negative real wage reality a soft leading indicator either on spending or on wage demand pressure.

The above chart updates the total payroll number vs. job openings. JOLTS data had been recovering with banner job openings this past week even though hires were weak. We see some of those openings being filled in the May payrolls (see JOLTS April 2026: A Modestly Positive Turn 6-2-26).

Management teams have a lot of moving parts to factor into planning whether quantitative or qualitative. The final IEEPA decision from SCOTUS came in against Trump, but he was prepared to start slapping on tariffs under Section 122, 232, and 301. That is well underway on Section 301 tariffs with a range of announcements this week. Those tariff actions will create more trade partner strife with the EU and Asia.

The USMCA is up for review and that is already starting out ugly with Trump bringing out his “51^st state” trash talking even as MAGA stokes the fires for Alberta secession. The EU diplomatic setbacks and trade relations are downright ugly at this point after Iran. NATO appears to be in the crosshairs.

The trade flows have been looked at in many past commentaries (see Meanwhile…Back in Economics and Tariffs 3-2-26, US Trade with the World: Import-Export Mix 2-25-26). The US has a goods trade surplus with Canada ex-oil. Canada is also the leading export market for almost 3 dozen US states.

The FOMC and the market both have much to digest, and Trump is making it clear to the domestic audience that there is a ceasefire and the “war is over.” This is hard to reconcile with a full blockade (an act of war by international law) and ongoing Iranian actions against both the US and Gulf nations.

The headlines around multiple supplier chains have been covered in other research, but fertilizer is one that aims directly at food while oil aims at just about everything from the gas pump to delivery costs, raw materials, and leisure and travel (airfare). The headlines highlighted the threat to semiconductor production while some customers could see IT budgets slammed. With so many bad headlines in private credit, the idea of financial stress and the need to be cautious on spending/capex will be an issue to be played out. That means the consumer sector is likely to be facing more risk ahead even with these good payroll numbers. Inflation and the lowest savings rate since the inflation peak of 2022 is a metric that needs to be watched over the summer.

The overall economic impact of tariffs had been far less than feared given the reality that most trade partners backed down in 2025. That still could change in 2026 with the latest wave of Section 301 attacks on supplier chains and trading partners.

See also:

JOLTS April 2026: A Modestly Positive Turn 6-2-26

Retail Signal Read Part Deux 6-1-26

Market Commentary: Asset Returns 5-31-26

New Home Sales April 2026: Slow Start to Spring 5-28-26

PCE Inflation: Income and Outlays April 2026 5-28-26

GDP 1Q26 Second Estimate: Shrunk in the Dryer 5-28-26

Retail Equity Comps: Looking for Signals 5-26-26

Housing Starts April 2026: Soft Starts in Single Family 5-22-26

D.R. Horton: Financial Powerhouse Despite Cyclical Softening 5-20-26

Taiwan: Stakes are High, US Awareness is Low 5-17-26

Industrial Production April 2026: Bringing a Lift 5-15-26

Existing Home Sales April 2026: Steady or Clinging? 5-14-26

Producer Price Index April 2026: Heat Rising on Cost Inputs 5-13-26

CPI April 2026: 4.1% All Items Less Shelter, 30Y UST 5% 5-12-26

• The +731K (+10.3%) rise in openings MoM (+7.3% YoY) was dominated by the “Professional and business services” with a +668K increase. Notable declines included “Finance and Insurance” at -135K.

• Hires decreased by -419K or by -7.6% and that takes a little luster off the job openings optimism. Manufacturing as a recurring focal point in the new tariff regime saw hires move modestly lower by -20K. Retail trade was lower by -81K and “Transportation, warehousing and utilities” lower by -41K. “Professional and business services” hires were down by -131K , Financial activities down by -30K, “Private education and health services” was down by -67K.

• On a positive note, “layoffs and discharges” declined by -192K or by -10.2% MoM and by -6.9% YoY. Retail trade layoffs declined by -88K, “Professional and business services” dropped by -112K. Manufacturing layoffs rose slightly but construction layoffs declined.

• A big question from here is where Iran and the consumer cycle go next and what will happen to Services hiring/firing in the age of AI. For now, it is still “low hire/low fire” but job openings offer hope.

The above time series plots job openings across the timeline from 2007 to current. This month brought a very sharp rebound in openings that starts to claw back some of the material downward trends from the end of ZIRP and the start of the tightening cycle in March 2022.

The high of 12.2 million off the lows of 4.6 million at the peak of the COVID panic are pretty dramatic, but recent periods had been soft before the April 2026 bounce of +731K back to 7.6 million. Openings are running well above the long-term median (5.92 million).

The 10.6% increase YoY job openings for April 2026 was good news and the questions from here will be how quickly (or not) those translate into actual hiring with the Iran X-factor playing a big role. The AI economic effects in terms of productivity and payroll needs also will be up in the air in a services economy.

The above chart plots Hires vs. Layoff/Discharges on a SAAR basis. Note: we remove the COVID numbers from several charts to support the visual value for “normal” periods. We comment on COVID history at the end of the note.

Hires declined by -419K sequentially from March 2026 while layoffs/discharges declined by -192K. The hires YoY declined by -275K or by 5.1%. While we are in an expanding economy, the annual GDP growth of 2.1% in 2025 had lagged 2024’s 2.8%. The hires rate is still tentative even if the openings are there. Layoffs were down -126K YoY or by -6.9%

The 1Q26 GDP as revised in the second estimate is off to an unimpressive start at 1.6%, which was revised down from +2.0% in the advance estimate (see GDP 1Q26 Second Estimate: Shrunk in the Dryer 5-28-26). That is not much of a tailwind. We get payroll numbers later this week.

The above chart updates the ratio of Hires to Layoffs/Discharges. The relationship stands at 3.02x, above the long-term median of 2.91x from 2007. The post-2007 period includes the effects of the longest recession since the Great Depression (Dec 2007 – June 2009) followed by the longest expansion in history from June 2009 to COVID (Feb 2020), which brought a very brief 2-month recession wrapped around a wild swing in pandemic employment.

The above chart plots Hires vs. Total Separations on a SAAR basis. Separations include Quits, Layoffs/Discharges, and “Other Separations.” Total Separations declined by -399K in April 2026 vs. March 2026 and were lower by -292K YoY.

We typically do not find “Total Separations” particularly interesting as a multi-line net number. The decline in Separations can be attributed to a decline in layoffs as noted earlier and to a -183K MoM decline in “Quits.” One theory is that quits signal relative confidence in finding a job on the other side of quitting. That theory implies some nervousness right now.

The Hires minus Total Separations differential is plotted above. As covered, the decline in Hires is material while Separations declined on lower Layoffs and lower Quits.

The net number above has moved notably lower in recent months and dipped into the negative range in Feb 2026 before bouncing back into positive range in March and April. The differential is below the long-term median of +174K.

The time series for Total Quits as a % of Separations (SAAR basis) was 59.8%, slightly above the long-term median of 58.0%. The classic “Quits Rate” is measured by Total Quits as a % Total Employment, and that metric moved slightly lower on the month to +1.9%, down from 2.0% in March 2026. The Quits rate is also down YoY from 2.0% to 1.9%.

The bottom line on the JOLTS numbers for April is that it was one that UST bulls cannot use to make a case for easing, which is pretty much impossible now anyway unless you are Hassett and threw out your facts and concepts book.

The long-suffering bull flattener advocates who are already worried about oil will remain worried about oil until Iran is cleared up and the effects of the massive inventory drawdown are clear (or not) this summer.

NOTE ON COVID DISTORTIONS

The Hires vs. Separations time series make for interesting numbers but tough charts to plot visually given how much the spike in Separations/Hiring during COVID distorted the numbers from March 2020 to June 2020. The swings literally were off the charts. For presentation purposes, we adjust the charts above to exclude the raw data for those months to get a better vantage point on somewhat more normal times. Compared to COVID, the credit crisis seems “normal” in terms of the job count moves.

For disclosure purposes, Separations across March 2020 (16.3 million), April 2020 (11.6 million), May (4.7 million), and June (5.2 million) were running against Hires in March (5.2 million), April (4.0 million), May (8.1 million), and June (7.4 million). We remove those from the charts to get better scale visuals on the periods that precede and follow as the market saw 50-year lows in unemployment in 2022. Wild swings were experienced by all as industries saw shutdowns and layoffs in the COVID recession. The long-term medians from 2007 to 2022 for Hires and Separations were very close.

Almost 28 million Separations combined in March-April 2020 as a brutal reminder of that period.

See also:

Retail Signal Read Part Deux 6-1-26

Market Commentary: Asset Returns 5-31-26

New Home Sales April 2026: Slow Start to Spring 5-28-26

PCE Inflation: Income and Outlays April 2026 5-28-26

GDP 1Q26 Second Estimate: Shrunk in the Dryer 5-28-26

Retail Equity Comps: Looking for Signals 5-26-26

Housing Starts April 2026: Soft Starts in Single Family 5-22-26

D.R. Horton: Financial Powerhouse Despite Cyclical Softening 5-20-26

Taiwan: Stakes are High, US Awareness is Low 5-17-26

Industrial Production April 2026: Bringing a Lift 5-15-26

Existing Home Sales April 2026: Steady or Clinging? 5-14-26

Producer Price Index April 2026: Heat Rising on Cost Inputs 5-13-26

CPI April 2026: 4.1% All Items Less Shelter, 30Y UST 5% 5-12-26

Employment Situation: April 2026 5-8-26

• The new home sales data show declines on a SAAR basis MoM (-6.2%) and YoY (-11.3%) volume declines even as the spring season is rolling in. The market saw another one of those “higher prices with high inventory” backdrops. Total inventory was up +1.7% MoM and down -2.2% YoY. On a Not Seasonally adjusted basis, the YTD 2026 sales decline stands at -6.5%.

• The volumes show 3 of 4 regions down MoM and YoY with only the West higher. The South region at 59% of total sales was down -9.8% MoM and -14.7% YoY. That mix shift by region presumably explains the higher median prices with the pricier West being the region that saw material increases in sales.

• The $422.5K median price bucks the trend seen in the 1Q26 reporting season with numerous major builders reporting lower ASPs.

The above chart updates the new single family home sales series from 1963, and the current 622K (SAAR) still marks a healthy rebound relative to the grim Jan 2026 number (576K revised). That said, the 622K is still weak in the context of 2025. The volumes are in the range of the long-term median but well below the 1980s/1990s.

The median of 989K in the housing boom/bust cycle from 2001-2009 is almost 60% higher. As we look back to the peak of the housing bubble, we see 1389K in July 2005 at over 2x the April 2026 volume. The COVID panic buying and relocation spree in Aug 2020 saw sales of 1036K as a wild period for new home sales and home starts in a ZIRP market with very low mortgage rates.

The above chart plots the share of total home sales (new + existing) that were captured by the “new home” builders. We see the share is now at 13.4% vs. the long-term median of 11.6%. When inventory is scarce, the right home at the right price wins. The challenge overall for new home sales has been mixed for builders by region. Major buyers generally report gross margin compression in 2026 and guided to similar expectations.

The market edge favors builders vs. existing home sales (note: existing is still the vast majority of volume). The homebuilder has the ability to use incentives and financing support (see Existing Home Sales April 2026: Steady or Clinging? 5-14-26).

Given the headwinds for volume in the existing home sales market in mortgage refinancing (golden handcuffs,” etc.), the shortage of existing housing inventory at economic all-in costs (price and mortgage rates) has been a recurring drag (see Existing Home Sales March 2026: New Beginnings or New Ends? 4-15-26).

D.R. Horton as the #1 US homebuilder offers a useful microcosm of the new home challenges (see D.R. Horton: Financial Powerhouse Despite Cyclical Softening 5-20-26). The 6% handle mortgage rates have been a struggle and had moved briefly as high as 6.75% before easing back to 6.6%.

The new home sales volumes are softer overall, and that can vary by region and product tier. On the other hand, the higher prices posted this month are not consistent with some of the color we hear from major builders on prices and narrowing gross margins.

Incentives are still a material part of the builders’ selling strategies, but the bias on ASPs should be downward extrapolating from some of the major builders. For example, the average selling prices in the recent quarter for DR Horton, Lennar, Pulte, and NVR among the biggest names all posted lower average selling prices. The census release points in the other direction for April.

The mid 6% handle mortgage rates are not offering relief on monthly payment pressures and affordability. The past week shows the 6.6% area in surveys as reported by Mortgage News Daily. The 10Y UST is the key benchmark for the direction of 30Y mortgages.

The median price time series above tells a simple story that prices had been under modest pressure after a period of record highs and a long stretch over the $400K threshold with a few dips below the $400K line.

As noted above, the move higher to $422.5K in April 2026 is bucking the trend after $391.1K last month. Lower average selling prices have been seen in the first quarter for a sampling of major builders. The trend could be explained as a matter of geographic mix with the volume declines in such regions as the South with its lower ASP mix. Meanwhile, the West rose with its traditionally higher ASP mix.

The above chart gives a different visual angle on the median new home sales prices from early 2022. That is a lot of $400K handles with some sub-$400K outliers. The current $422.5K posted a sharp rebound from $391.1K. The price metrics can shift with regional mix as well as home price tiers and related supply issues. The affordability question is still intertwined with the monthly payment pressures from mortgages. It is about more than price.

The time series above updates the new single family home sales across the cycles since 1973 for the #1 and #2 regions of the South and the West. The 370K for the South is around 59% of the total of all single-family new home sales (SAAR) and marks a sequential decline of -9.8% from March 2026 and is down by -14.7% YoY. The West at 159K is 26% of the total. For the month, the West was +18.7% sequentially and +4.6% YoY.

The timeline for new home sales for the smaller Midwest and much smaller Northeast market is detailed above. The Midwest (11% of total) was -25% sequentially and -21.4% YoY. The Northeast market (4% of total) was -12.9% sequentially and -12.9% YoY.

See also:

PCE Inflation: Income and Outlays April 2026 5-28-26

GDP 1Q26 Second Estimate: Shrunk in the Dryer 5-28-26

Market Commentary: Asset Returns 5-26-26

Retail Equity Comps: Looking for Signals 5-26-26

Housing Starts April 2026: Soft Starts in Single Family 5-22-26

D.R. Horton: Financial Powerhouse Despite Cyclical Softening 5-20-26

Taiwan: Stakes are High, US Awareness is Low 5-17-26

Industrial Production April 2026: Bringing a Lift 5-15-26

Existing Home Sales April 2026: Steady or Clinging? 5-14-26

Producer Price Index April 2026: Heat Rising on Cost Inputs 5-13-26

CPI April 2026: 4.1% All Items Less Shelter, 30Y UST 5% 5-12-26

Employment Situation: April 2026 5-8-26

JOLTS March 2026: Openings Down, Hires Up, Layoffs/Discharges Up 5-5-26

Synchrony Financial: Favorable Consumer Credit Signals 4-24-26

The US as an Aspiring Emerging Market: Fiscal SNAFU, Political FUBAR 4-6-26

Market Lookback: Confusion Reigns, Dislocation Pours 3-22-26

Market Lookback: The Gulf of Cause and Effect 3-15-26

VIX: Market Still Not Getting the Vapors 3-6-26

Meanwhile…Back in Economics and Tariffs 3-2-26

• The headline starts number is mixed across single family vs. multifamily with single family starts declining by -9.0% MoM from March and -2.4% YoY. All four regions saw starts decline MoM. On a “not seasonally adjusted basis,” we see single family YTD at -5.1%.

• Multifamily had a good month on starts with +14.3% MoM and +23.3% YoY on a SAAR basis. On a “not seasonally adjusted basis, the YTD change for multifamily is +22.7%. The West region posted a major increase in multifamily YoY with total starts at +49% YoY but only +7.3% YoY in singe family.

• Permits were up in total MoM by +5.8% and down slightly YoY at -0.2%. Permits were down -2.6% in single family MoM and -5.5% YoY.

• The housing headwinds are only in part about mortgage rates since the 6.51% for Freddie Mac 30Y this week is worse sequentially but is still framed against 6.86% this time last year for that benchmark rate. The Mortgage news Daily survey today is 6.65%.

• We looked at industry leader D.R. Horton (DHI) this week as a good bellwether indicator of what is going on in the housing markets. DHI is the perennial #1 in units sold and occasionally the #1 in dollar terms as well (including the most recent quarter). With the lowest average selling prices of the major homebuilders, DHI offers a good angle on the “real world” in homebuilding volumes and prices across regions (see D.R. Horton: Financial Powerhouse Despite Cyclical Softening 5-20-26).

The above chart offers a clear reminder of the wild single family residential construction cycles across the decades. With favorable demographics for housing demand, the current starts run rate of 930K is still well below the long-term median and below all the timeline medians posted. The exception is the current median for the “post-crisis” period (crisis = housing sector bubble, RMBS shock, and near meltdown of the bank system).

The current backdrop includes mortgage rate pressures on the affordability of monthly payments that are likely to get worse from here. That comes after seeing mortgage rates flirt very briefly with crossing below the 6.0% line on Feb 26, just before the Iran War. This past week hit the 6.75% area before the modest rally of the UST curve.

Even if the FOMC shifts its policy back toward easing under Warsh (good luck with that FOMC vote count), the potential for a UST curve steepening would remain a material risk factor as the inflation variables work their way through the system. The bear steepening risk is alive and well as is the case with an upward shift of the curve.

As we go to print today, the “Vegas line” (i.e. FedWatch) shows a 0% chance of a cut by the Dec 2026 FOMC meeting. In a major setback for “easing bulls,” the odds of 1 hike is at 42.5% and now greater than the “no change” odds at 30.7%. For 2 cuts, we see a 21.5% probability. Those odds will jump around but are signaling a drag on the housing sector as Iran effects play out.

As noted in the bullets, single family starts were soft in relative terms vs. headline total starts with multifamily starts rolling along favorably (detailed further below).

The above chart plots total permits and total starts on a Not Seasonally Adjusted (NSA) basis. NSA is viewed as closer to what is going on in the trenches without the SAAR model assumptions.

For April 2026, we see NSA total permits essentially flat YoY and single family permits down by -5.5% YoY. For MoM, total permits were +7.7% with single family permits up +1.7% MoM.

For total starts and single family starts on an NSA basis, we see total starts up by +5.5% MoM and single family NSA starts lower by -2.5% MoM.

The above plots the single family starts by region (NSA). On a MoM basis, the critical South region (totals almost 49% of total NSA starts and over 57% of single family starts) was down slightly in single family by -1.2% MoM and up by +2.2% YoY. The West as the #2 single family market was down MoM by -15.1%. The Midwest region MoM in single family was +23.1% with the small Northeast market at -13.2% MoM. The YoY NSA starts were mixed with the South and West both higher among the big two regions. The Midwest and Northeast were lower YoY.

The above chart updates running multifamily starts. At +529K (SAAR), April 2026 rose by +14.3% MoM and by +23.3% YoY. The 529K is well above the long-term median of 339K, above the median from Jan 2009 to current (345K), and above the median from 2000 to 2008 (296K). April 2026 even exceeded the median of the 1960s boom (487K).

The 1960s was a period of explosive growth for multifamily with the back end of the baby boom, the postwar rise of urbanization, and the high racial migration from the South to the North all part of the multifamily tailwinds. Immigration also played an important role.

The above chart updates Multifamily permits (SAAR). The 514K in April 2026 multifamily permits rose by +22.7% MoM and by 11.5% YoY.

The bottom line on home starts as we wade into the peak selling season is that 2026 is shaping up as a mediocre year for homebuilders. This is consistent with the guidance we are getting from the major homebuilders.