August delivered a mixed economic picture. Inflation remained above the Federal Reserve’s preferred target, bond yields stayed high, and oil prices moved sharply as geopolitical tensions continued. At the same time, retail and housing data suggested that consumers and businesses were becoming more cautious.

The broader economy did not appear to be breaking down, but it continued to move unevenly. Services activity remained resilient while manufacturing weakened considerably. Combined with a labor market marked by limited hiring and limited layoffs, as well as stubborn inflation, those contrasts made the outlook for economic growth and Federal Reserve policy more difficult to assess.

Here is how the major market benchmarks performed during the month.

Major U.S. Stock Indexes

U.S. equities remained close to record territory in August. Technology and artificial intelligence-related companies continued to lead the market, even as economic reports sent mixed signals. Nvidia’s strong earnings report near month-end helped ease worries that spending on AI infrastructure was beginning to lose momentum.

What Moved the Market

The labor market cooled without coming to a halt. July job growth came in well below expectations, while prior payroll figures were revised downward. The weaker hiring data added to signs that the labor market is losing momentum. Still, the unemployment rate declined to 4.1%, in part because fewer people were actively seeking work, and layoffs remained relatively uncommon.

Consumers showed greater caution. August retail sales reporting pointed to a 0.6% decline in July, the largest monthly reduction in more than a year. Major retailers, including Walmart and Home Depot, indicated that shoppers were becoming more selective with their spending. Going forward, investors will be watching employment conditions, real wage gains, and holiday sales outlooks for further insight into consumer resilience.

Housing remained under pressure. High mortgage rates continued to weigh heavily on the housing market in August. Homebuilding activity and sales fell toward some of their weakest levels in years, while prices continued to soften. A small improvement in building permits provided one encouraging signal, but borrowing costs remained elevated enough to restrict more meaningful improvement. Among major economic sectors, housing continues to offer one of the clearest examples of how higher rates affect household financial decisions.

Inflation continued to challenge policymakers. The Federal Reserve’s preferred inflation measure showed limited progress during the month. That result kept the possibility of another rate increase in focus, even as the labor market cooled and the war with Iran remained an important factor in the inflation discussion. Several Fed officials had already expressed support for higher rates, and late-month remarks from Fed Chair Kevin Warsh reinforced that controlling inflation remained a greater priority than supporting growth. Markets responded by increasing the perceived likelihood of a September rate move.

What to Watch Next

Upcoming September employment and inflation reports should offer a clearer view of how the economy is progressing as the third quarter nears its close. The more significant concern may be the continued impact of elevated borrowing costs, which could further weaken housing activity and place pressure on growth-stock valuations.

Nvidia, a key indicator for artificial intelligence investment, demonstrated that spending on AI infrastructure remains strong. The next question is whether the resulting earnings and cash-flow gains will extend beyond a small group of market leaders. Software, industrial, utility, networking, and power infrastructure companies may all be important areas to watch as investors look for evidence that AI-related demand is broadening.

At C.H. Dean, we understand that periods of conflicting market and economic signals can make portfolio decisions feel more complicated. If this month’s developments raise questions about your own financial plan, we are here to help you put the information into perspective.