The Nationwide building society reported a 0.9% drop in house prices in August, following a 0.5% fall in July, the first two-month fall since February 2009. The annual increase edged down from 6.6% to 3.9%. The temporary boost to prices from the reluctance of sellers to sell looks to be over, combined with post-election (and post-budget) worries about the recovery.

The fact that the market is so thin means house price movements have far less impact than in "normal" times. After the surprise rise in prices last year, the prospect is that houses will end 2010 no higher than they started. More here. Meanwhile, the big boost to gross domestic product from construction will not be repeated. The latest purchasing managers' index for the sector showed a drop to 52.1 in August, from 54.1.

There are two explanations for the slowdown in manufacturing growth reported in the latest purchasing managers' index for the sector. One is that exporters are feeling the effect of weaker growth in markets, the other that the kick from inventories is fading. Still, an 11th month of growth and a PMI reading of 54.3, down from 56.9, is a long way from an industrial double-dip, though that, inevitably, is what the headlines will say. More details here.

The National Housing Federation has generated headlines with its prediction that home-buyers who bought at the peak in 2007 will have to wait until 2014 before prices exceed those peak levels and, as they put it, they will have escaped negative equity. The forecast, based on research from Oxford Economics, is summarised here and is actually quite optimistic.

Remember that in the 1990s it took nine years for prices to regain their boom peak; longer in some regions. The NHF forecast is for a modest dip of 3% in 2011, followed by a gradual strenghening. Prices in 2015 will be 22% higher than 2009, it says.

The market has been different this time, partly because of the speed and aggression of the monetary policy response. It took much longer for prices to rise in the 1990s. Even if they slip now, it is from a higher base.

What's the data telling us now? As always the reporting of small prices rises (boom) and small falls (bust) is pretty useless. Bank of England figures for mortgage approvals in July showed a fractional rise to 48,722, from 48,562, against expectations of a small fall. Prices started to rise in the early months of 2009 with mortgage approvals of 40,000 a month, against 120,000 at the early 2007 peak. What level of approvals is consistent with stable prices? Not the 70,000-80,000 that used to be believed, but probably a bit higher than just under 50,000 with increased supply coming through.

Those surprisingly strong second quarter GDP figures just got stronger, with the initial 1.1% increase revised up to 1.2%. The revision had been expected, following strong construction data. Consumer spending showed a 0.7% rise, suggesting the UK consumer is not dead yet. Is this as good as it gets? One weak aspect of the numbers was investment, down 2.4%. These figures are often prone to upward revisions.

More on the second quarter data here. As for the third quarter, it will be surprising if it approaches the second's quarterly rise, though it has begun well. GDP in the second quarter was 1.7% up on a year earlier. Calendar growth of around 2% for 2010, or something close to it, looks perfectly possible.

On Thursday I found myself debating the future of capitalism with Professor John Holloway, author of Crack Capitalism, at the Edinburgh book festival. Given that Edinburgh was in some ways at the centre of the banking crisis, with Royal Bank of Scotland and Bank of Scotland (part of HBOS) now wholly or partly state-owned, it was not the easiest of wickets.

My bottom line was that, while a particular version of financial capitalism produced one of capitalism's periodic manias, panics and crashes, capitalism will survive the crisis. To paraphrase one former prime minister, Winston Churchill, capitalism has many faults but it is better than any of the alternatives. To paraphrase another, Margaret Thatcher, there is no alternative,

Retail sales volume increased by a strong 1.1% in July, though the 12-month rise was a modest 1.3%. Even so, sales in the latest three months rose by 1.7% compared with the previous three months. Food sales were weak, down 0.9% on the three-month comparison, while non-food sales were up by a strong 4.2%. Confidence may be weakening but consumers are still spending. More here.

The news on public borrowing was also encouraging, with net borrowing in July of £3.8 billion, down from £6.1 billion a year earlier. There's a long way to go but it looks as though borrowing is on a downward trend, as the Office for Budget Responsibility has predicted. The question is whether it will prove to be too pessimistic for 2010-11. More here on the figures.

Consumer price inflation dropped from 3.2% to 3.1%, retail price inflation from 5% to 4.8%, and retail price inflation excluding mortgage interest payments (RPIX) also from 5% to 4.8%. Food prices rose but transport (second-hand car prices and petrol) and clothing (down by a huge 4.9% in July), fell. Note, as David B Smith of the shadow monetary policy committee has pointed out, how the consumer prices index has been promoted in the official release here, almost but not quite to the exclusion of the RPI.

The drop in inflation did not spare Mervyn King from having to write his eighth letter of explanation. He will have been reassured by a further drop in CPI inflation at constant tax rates, which is now just 1.3%, down from 1.5%.

I have some spare copies of a couple of my recent books. They are The Age of Instability, The Dragon and the Elephant and Growling Tiger, Roaring Dragon, its North American hardbook equivalent. If anybody is interested, signed copies are available for £8 each, including postage, or two for £15. E-mail david@economicsuk.com.