Here’re some business cycle indicators with deflated retail sales:
Figure 1: Civilian employment adjusted to NFP concept smoothed population controls (bold orange), manufacturing production (red), ADP private nonfarm payroll employment (light green), real retail sales, CPI deflated (black), freight services indexes (brown), and coincident index in Ch.2017$ (pink), GDO (blue bars), all log normalized to 2025M01=0. Source: BLS, ADP via FRED, Philadelphia Fed, Bureau of Transportation Statistics, Federal Reserve via FRED, BEA 2026Q1 2nd release, and author’s calculations.
While CPI deflated retail sales rebounded, a little disaggregation to ex-auto, ex-parts, ex-gasoline shows some deceleration over the last two months.
Figure 2: Retail sales ex-auto, ex-gasoline stations, in mn$/mo (blue), in mn2025$/mo (red), both s.a. Deflation using core CPI. Source: Census via FRED, BLS, and author’s calculations.
In other econ news, this week, housing starts for May were reported down 8.5% m/m, to the lowest level since 2020. The problem was mostly in multi-unit starts, but singles were down 1.9%. Here’s the picture for singles and multis:
https://fred.stlouisfed.org/graph/?g=1WWyf
While the volatility of multi-unit starts is partly to blame for the big number, the drop in singles is a concern. There’s a reason for that drop; houses aren’t moving, and inventories are quite high. Here’s new homes sold:
https://fred.stlouisfed.org/graph/?g=1WWyc
Here’s the inventory to sales ratio for new homes:
https://fred.stlouisfed.org/graph/?g=1WWy5
You see the problem. You know the reason: Affordability – higher mortgage rates and new home prices.
I’m looking forward to 2026 household formation data. After 2025’s banner performance, I kinda think 2026 will be shabby. Kids can’t afford homes, so don’t start households.
affordability is a problem home buyers have forced upon themselves. I grew up in a 1200 sq ft home, family of 4, and it was plenty spacious. as a toddler, we had an 800 sq ft home. these homes were perfectly fine for a family. today, however, even first time homebuyers would turn their nose up at those properties. instead they want a 4000+ sq ft home with all the additional costs associated with such a large home. insurance, taxes, heating, cooling, law maintenance, all contribute to this affordability issue. you know how much it costs to have a cleaning service for a 4000 sq ft home? otherwise you spend half your week cleaning it yourself. somehow we need to get builders to produce a quality 2000 sq ft home (not a townhome) at an affordable price. homes are too big, and this leaks into homebuyer expectations.
The US military has confirmed that it used Elon Musk’s Grok AI to develop targets for 2,000 strikes in the first 96 hours of the Iran war. So now we likely know how they managed to kill 120 small children. We know that AI’s are unreliable and subject to hallucinations. This is a war crime and depraved indifference to life to use AI in this manner while failing to verify the output.
Elon Musk can now add these 120 children to his murder tally along with the hundreds of thousands from his DOGEing of USAID. Hard to imagine how people can allow themselves to be seen in his EV Swastikars.
Actually we do know how it happened – they used out of date satellite imagery from before the site became a school, at which time it was part of the base. Two people whose input they were supposed to get said they doubted it was a military target any more, but those opinions never made it into the final recommendation. So, just a typical human screwup by people who were in too much of a hurry to double- and triple- check that they got things right.
We don’t know the details because after nearly 4 months, Hegseth has continued to cover them up. But we explicitly know that Musk’s Grok provided the original targeting information, as the military has already separately admitted, and that if any human did review it, they simply decided that the AI knows best or were afraid to contradict it.
Cameron Stanley, the chief digital and artificial intelligence officer for the Department of Defense, testified under oath for a federal court that the chatbot “enabled U.S. forces to deploy over 2,000 munitions to 2,000 distinct targets within 96 hours during Operation Epic Fury, a testament to the greatly increased operational efficiency made possible by the Grok Gov Model.”
It’s a war crime. Hegseth had given explicit orders that there will be no rules of engagement. No wasting time preventing unnecessary civilian casualties. Dead children are just “collateral damage” as Baffling likes to say. Or “greatly increased operational efficiency” in military speak.
The “just following orders” defense didn’t fair so well for those at Nuremberg. Grok may have provided the targets but humans pressed the buttons.
Incidentally, the testimony of Camaron Stanley quoted above came about as the result of an environmental lawsuit filed by the NAACP regarding Musk’s Colossus data center in Tennessee, the largest in the world, used to run Grok. The DOJ is defending the facility based on its necessity for the military’s “greatly increased operational efficiency.”
It is powered by 47 unlicensed, unpermitted gas turbine generators.
Can you imagine the noise and pollution from running 47 jet engines continuously 24 hours a day? They emit enormous amounts of poisonous nitrogen oxides and particulates into the surrounding neighborhoods. They are all unlicensed, a clear violation of EPA rules. As usual, Musk believes that no laws apply to him. And why not, because he has the Trump DOJ defending him in the case in opposition to the EPA laws.
Elon Musk is the most dangerous individual on the planet. He has the money and the political power to do anything he wants. Move fast and kill things — that’s the techbro motto.
FYI :
https://www.bloomberg.com/news/articles/2026-06-17/pboc-hints-at-new-policy-framework-focused-on-overnight-rate
The People’s Bank of China is considering adopting the serting of an overnight rate as a monetary policy tool.
Off topic – the Group of 30 (a non-profit, not a talking club for governments) has released a report on nonbank financial institutions. The title engages in a bit of scare-mongering – probably justified. There is plenty of background information that makes it worth reading:
“Nonbank Financial Intermediation and Financial Stability: A Perfect Storm in the Making?”
https://group30.org/publications/detail/5906
Aside from the background information, the report lays out the limited knowledge we have about the risks involved. The whole point of NBFIs is to avoid the cost of financial safeguards, one result of which is a lack of transparency. We already have seen that relatively small shocks can transmit through NBFIs to conventional financial institutions and governments.
The authors make a number of recommendations, including liimiting asset/liability mismatches, leverage and counterparty exposure, as well as stress testing and official provision of liquidity in times of stress.
In other words, make NBFIs more like banks; not gonna happen until we have a bigger collapse than has already occurred.
test
Bruce Hall is chirping that he can buy gasoline for $2 a half gallon!
That’s nothing – I can buy gasoline for $2.70 a half gallon!!
I can get it for $2 per liter – in Europe.