Americans are spending their hearts out lately.

Several reports this week came in strong. The closely watched personal consumption expenditures index rose 0.5% month-over-month as consumers spent $104B more in July than in June. That is mostly driven by an increase of $59B in spending on services, which is dominated by an increase in the cost of housing, the Bureau of Economic Analysis reported this morning. (More below on the PCE price index.)

GDP was revised up to 3% growth in Q2, and the Census Bureau attributed that to consumer spending being more robust than expected — it revised that up from 2.3% to 2.9% growth. 

This weekend is supposed to be a big one for spending money, especially in the form of travel. This has been a record summer for journeys through American airports, and 17 million people are forecast to squeeze themselves into the cramped airplane aisles this weekend. United and American Airlines have said they expect to set new Labor Day records. 

The bulk of retail earnings reports this week were also rosy: Nordstrom, Foot Locker, Abercrombie, Bath & Body Works, Chewy, Five Below, Victoria’s Secret, Best Buy, Burlington and Ollie’s Bargain Outlet all outperformed.

That didn’t always help their stock — Ollie’s and Five Below both saw share prices fall despite reporting better-than-expected Q2 performance. Combine that with revenue misses from Dollar General and Kohl’s, and it feels like something is happening to the discount retailer segment, which is usually a bright spot when the economy starts weakening and things are uncertain. Dollar General attributed its shortfall to lower-income Americans becoming more cautious about spending. Dollar Tree reports on Sept. 4, and it’s expected to see 2.5% revenue growth for the quarter, but its stock is already dipping based on Dollar General’s report.

But all in all, Americans seem happy to part with their hard-earned dollars, which will continue to drive activity to that ugly-duckling-turned-swan sector: retail. 

— Jay Rickey, Kayla Carmicheal, Mark F. Bonner and Catie Dixon

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On Our Radar

• The core PCE index rose 0.2% from June to July, just as expected, and the annual growth was 2.6%, below the 2.7% that was forecast. The continued cooling of that growth puts yet another tally in the “time to lower interest rates” column. Shelter continues to drive inflation, clocking a 0.4% increase in July while the rest of the core buckets rose just 0.1%.

• The Chicago Business Barometer came in at 46.1 in August, up from 45.3 in July, indicating an improvement in business activity and performance in Chicago’s purchasing and supply management industry. An index score of 50 is the breakeven point between economic expansion and contraction, so despite the month-over-month growth, Chicago businesses are still shrinking — as they have for nine consecutive months. The report attributes some of this to a slowdown of new orders at Boeing. The Chicago CPI, as it’s called, is considered an important indicator of national manufacturing activity. 

• 19 days until interest rate D-Day. CME’s FedWatch tool today shows a 67.5% chance of a 25-basis-point drop and a 32.5% chance of a 50-bps drop based on interest rate trader activity — adding up to a 100% chance of a rate cut. It will be interesting to see if the healthy PCE price index numbers tip investors more toward 50 bps in the coming days.

• Capri Sun is debuting bottles. It just feels wrong to drink Capri Sun out of anything other than the iconic pouches — surely the flavor will be all off. 

• Happy Labor Day! We’re closed Monday but will be back in your inboxes Tuesday. 

Voices From The CRE Battlefield

“We fully expect lenders to become more involved and take control of certain projects over the next year to two. … There just is not enough demand right now to support the amount of vacancy in the market,” JLL Executive Managing Director Bob Richards said. 

“This is the most dramatic correction in the history of life science real estate in the United States,” he added.

READ: ‘Mistimed Construction’: Boston Life Sciences Developers At Risk As Buildings Sit Empty

This Morning's News

ECONOMY — ’A Double Dose Of Good News’ For Interest Rate Watchers (Seeking Alpha and U.S. News): The smaller increase to the PCE price index while economic growth continues should seal the deal on interest rate cuts Sept. 18. The August jobs report next week will help determine how big that cut will be. Get an early forecast of next month's long-awaited rate cut and explore Fitch’s analysis of the latest inflation data. 

DATA CENTERS — Nvidia's Earnings Underscore Continued AI Data Center Expansion (Bisnow): Nvidia's latest earnings reflect a robust and ongoing expansion in AI data center operations, contradicting mixed reactions from Wall Street and signaling sustained growth in this high-tech sector. Explore Nvidia's performance and its relation to the AI data center boom.

HEALTHCARE — REIT MPT Demands Rent Payments From Steward Health (CoStar and Seeking Alpha): Medical Properties Trust has issued an ultimatum to its tenant, Steward Health: Pay up or vacate its properties. Meanwhile, Steward has found buyers for four more Massachusetts hospitals. Get this week's update in the ongoing Steward Health Care saga and see what hospitals are trading hands.

LIFE SCIENCES — Boston Life Sciences Developers Face Challenges with Empty Buildings (Bisnow): In Boston, the life sciences sector sees a worrying trend of empty buildings due to misaligned construction timing. There are 37 life sciences buildings sitting completely empty, 9% of its total inventory. Overall vacancy has spiked to 21.5% and is expected to worsen. Read more about the impact of a supply glut.

LEGAL — Landmark Case Plaintiff Founds Startup To Disrupt Real Estate Brokerage (Tech Crunch): One of the plaintiffs in the commissions lawsuit against the National Association of Realtors has co-founded a startup called Landian aimed at eliminating the need for brokers. Learn about Landian.

RETAIL — Chewy Expands Veterinary Services Amid Physical Store Growth (CoStar): Chewy is growing its physical retail presence and opening more veterinary care clinics to complement its online sales platform. Next up on the expansion docket: the Lone Star State.

RETAIL — Walmart Challenges Dollar Store Market (Seeking Alpha): Pricing strategies from Walmart, Aldi and other low-cost brands like Temu are disrupting the business model of stores like Dollar General. Learn how Walmart’s game plan impacts dollar stores.

FINANCE — 20 Broad St. Faces Default, Signaling Trouble for Office Conversions (Bisnow): The impending default of 20 Broad St. in New York City may serve as a cautionary tale for similar office-to-residential conversion projects. Here's what the building's challenges highlight.

RETAIL — Amazon Fresh Opens 4 New Locations (Retail Dive): Amazon Fresh opened four new stores this week as it continues investing in its grocery segment. It now has 50 locations in eight states. Get the specs about the new stores.

INFRASTRUCTURE — Department Of Defense Grapples With $50B In Deferred Maintenance (Fed Week): The average age of buildings in the Army and Navy is 47 years, and more than 40% of Air Force and Army buildings have exceeded their expected lifespan. Dive into the challenges of deferred maintenance at DoD facilities.

HOSPITALITY — Business Travel Boosts Weekday Hotel Demand In The U.S. (CoStar): As summer winds down, U.S. hotels are seeing a surge in weekday demand driven by the onset of the business travel season. RevPAR rose 4.5% year-over-year in the week ending Aug. 24, the highest increase in two months. Learn about the trends influencing hotel performance.

DEVELOPMENT — DeSantis Reconsiders Commercial Developments In Florida State Parks (Bisnow): Florida Gov. Ron DeSantis has revised plans to develop hotels and a golf course in Florida’s state parks, responding to public and environmental concerns about preserving natural resources. Get the lowdown about DeSantis' new playbook for Florida's state parks.

MULTIFAMILY — Diversity In Chicago's Multifamily Leadership Lags, Study Finds (Bisnow): Women and people of color are significantly underrepresented in leadership roles within Chicago’s multifamily sector, new analysis reveals. Less than 1 in 5 Chicago multifamily developers employ a person of color as a leader or manager — and the numbers are even worse for women. Learn more about the diversity challenges in Chicago's multifamily leadership.

DEVELOPMENT — Oil Company Commits $100M To U.S. Forest Conservation (WSJ): In what is likely the largest-ever purchase of carbon offsets, TotalEnergies of France is purchasing carbon credits that cover timberland in 10 U.S. states. The French oil giant aims to cut greenhouse gas emissions it can't by 2030.

INDUSTRIAL — Site Centers Adjusts Portfolio With Strategic Sales And Acquisitions (Seeking Alpha): Site Centers has restructured its property portfolio, selling 11 properties and purchasing four in Q3 already. Site Centers has been busy lately — dig into its recent activity.

ECONOMY — Interest Rate Cuts: No Easy Fix For Global Housing Affordability (NYT): It's simply more difficult to make affordable housing construction economically feasible. Explore why rate cuts aren't a silver bullet for the housing crisis.

HOUSING — Skepticism Surrounds Housing Plans By Harris And Trump (NYT): Harris and Trump have proposed plans to address housing market challenges. The two plans have little in common outside of skepticism from outside economists. Read more about the economic scrutiny of both housing plans. 

HOSPITALITY — Wynn, Related Reveal Plans For $12B Casino Resort (Bloomberg): Wynn Resorts and Related Cos. have unveiled details for a $12B casino resort project in NYC with a 1,500-room hotel, spa, various dining options and event spaces and a public-art showcase. The development project will also have 1,500 housing units, a public school and a park with over 300 trees. Get the details on the project.

LIFE SCIENCES — NexPoint Advances $4B Life Science Campus In Plano (CommercialSearch): Developer NexPoint has won the go-ahead to move forward with its ambitious $4B life sciences campus project on 200 acres in suburban DFW. Get the details on the massive development heading to Plano.

RETAIL — ‘Back To The Future’ Mall Trades Hands (Commercial Observer): A joint venture has secured a $115M loan to acquire the famous mall featured in 'Back to the Future.’ Why Don’t You Make Like A Tree And Get Out Of Here?

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The First Draft is produced by Director of Newsletters Jay Rickey, Managing Editor Catie Dixon, Editor-in-Chief Mark F. Bonner and Deputy Newsletter Editor Kayla Carmicheal, with an assist from ChatGPT. We’d love your feedback! Email us at firstdraft@bisnow.com.