New home construction slides more than expected.  Construction of new homes continued its downward trend in August, dropping 6.2 percent from July to rate of 895,000 housing starts per year.  New single-family home starts fell 1.9 percent in August bringing that construction rate to its slowest pace since January 1991, at the bottom of the 1990-1991 recession and housing slump. Furthermore, building permits, which act as a leading indicator for future construction, fell 8.9 percent in August – more evidence that there is persisting weakness in the housing sector. New home construction is now more than 60 percent below the pace set at the previous peak in January 2006.

Consumer prices fall 0.1 percent in August.  The Bureau of Labor Statistics reported that the Consumer Price Index for All Urban Consumers (CPI-U) fell 0.1 percent in August after rising 0.8 percent in July.  After three consecutive months of growth in energy prices (mostly due to surging gasoline prices), the index for energy fell 3.1 percent in August.  The core-CPI, excluding food and energy prices, advanced 0.2 percent in August as broader consumer prices registered a modest increase.  Despite the drop in the August CPI, prices are still more than 5 percent higher than they were 12 months ago, outstripping the 3.3 percent increase in weekly wages over that time. (See Chart)

Federal Reserve holds interest rate target at 2 percent.  The Federal Open Market Committee (FOMC) met last Tuesday and voted to sustain the current federal funds interest rate target at 2 percent.  In their policy statement, the FOMC noted that the labor and financial markets continued to experience weakness, but that prior rate cuts and other liquidity measures implemented by the Federal Reserve would register their effects in the coming weeks and months.

Industrial production falls 1.1 percent in August.  The Federal Reserve reported that industrial production fell 1.1 percent in August after revisions from the prior two months showed smaller gains than had previously been reported.  The fall in production was due in large part to an 11.9 percent decline in the production of motor vehicles and parts, the demand for which has softened considerably with the rise in gasoline prices.  Absent the decline in the auto sector, manufacturing output was still down 0.3 percent, following consistent slowing over the past few months.