Broad economic growth continues despite persistent housing softness

Trend watch

Air passenger traffic continued its descent from the summer peak, falling 4.2% on the week to 17.3 million. That’s down 4.6% compared to the same week a year ago and now down 0.2% on a year-to-date basis compared to the same period last year.

Similarly, hotel occupancy is cooling, although August skews toward leisure more than any other month. Based on revenue per available room (RevPAR)―a key hospitality metric―Monday through Thursday outperformed Friday-Saturday (up 6-8% vs. up 4-5%, respectively), which indicates that business and group travel trends have remained healthy through the most recent week, according to Truist Securities Lodging analyst C. Patrick Scholes.

Our take

The latest economic data continues to paint a picture of an economy expanding at a moderate but resilient pace. Several forward-looking indicators point toward ongoing growth, with the "Big 4" measures remaining consistent with continued economic expansion. While not every sector is firing on all cylinders, the overall backdrop suggests the economy has maintained momentum despite pockets of softness and lingering uncertainty.

Trade and labor-related indicators have been particularly encouraging. Port volumes extended their streak of monthly gains to five consecutive months, the longest run of increases since 2020, signaling steady demand flowing through supply chains. However, volumes remain essentially flat compared with 2025 levels, suggesting growth is more stable than robust. Meanwhile, temporary staffing surged to its highest level since late 2023, a noteworthy development given that employers often increase temporary hiring before committing to permanent additions. Together, these indicators suggest businesses remain optimistic about near-term activity.

The housing sector continues to be one of the weaker areas of the economy. Housing starts tumbled during the latest reporting period, highlighting persistent affordability challenges and elevated borrowing costs. Building permits posted modest gains, offering some hope that construction activity may stabilize in the coming months, but the overall trend remains subdued. Similarly, the National Association of Home Builders' measure of prospective buyer traffic held steady for a second straight month in August, yet it remains depressed by historical standards, underscoring the ongoing hesitation among potential homebuyers.

Inflation pressures tied to housing appear more contained than they were in prior years. The annual pace of rent growth remains below its pre-pandemic trend, helping moderate broader inflation measures. However, monthly rent increases have picked up recently, suggesting the disinflationary tailwind from housing may be beginning to fade. While rent growth is far from alarming, recent movements warrant monitoring given housing's outsized influence on overall inflation.

Outside of housing, business activity remains constructive. S&P Global’s (SPG) manufacturing gauge cooled, indicating that the factory sector continues to expand at a measured pace rather than accelerate. In contrast, services activity surged to a four-year high, reinforcing the economy's continued reliance on consumer and service-oriented demand. Industrial production also jumped to its strongest level in seven years, highlighting solid output across key industries. Taken together, the combination of firm service-sector activity, rising industrial production, stronger temporary hiring, and improving trade flows suggests the economy remains on a growth trajectory even as housing and manufacturing show signs of restraint.

Bottom line

The latest data suggest the economy remains resilient, supported by stronger temporary hiring, trade activity, and industrial production. Housing remains a weak spot, though rent inflation is still relatively contained. Meanwhile, robust services activity continues to offset softer manufacturing, reinforcing expectations for continued growth. Thus, despite crosscurrents, the U.S. economy remains on solid footing, albeit uneven. That’s why we continue to say that it feels like “one foot on the gas, and one foot on the brake.” Lastly, our view stands that the bar remains high for a Fed rate hike this year.