A look forward at the October 21 week puts the focus back on the economic data in the absence of comments from Fed policymakers during the communications blackout period around the October 29-30 FOMC meeting.
The week’s data really doesn’t add much to the picture in the context of the dual mandate. Certainly, there are the employment indexes in the surveys for the manufacturing and service sectors that will affect the outlook for the labor market. Then there’s the price indexes in the same reports that will give a hint about price stability. But the next major numbers for employment won’t arrive until the October Employment Situation at 8:30 ET on Friday, November 1. As for inflation, the Fed’s preferred measure is the PCE deflator and that won’t be available until 8:30 ET on Thursday, October 31 which is after the meeting.
However, a lot of what may drive the decision to cut rates at the October 29-30 meeting – if that is indeed the choice of the FOMC – will be the risks to the outlook and whether Fed policymakers feel the need to take out a little more insurance.
For October to-date, the regional surveys of manufacturing are consistent with soft and/or softening conditions. On Tuesday, the Richmond Fed’s Composite Manufacturing Index for October at 10:00 ET will probably be the best signpost as to what may happen when the ISM Manufacturing Index for October is released at 10:00 ET on Friday, November 1. It – along with the Philadelphia index which was released October 17 – has a strong correlation to the behavior of the ISM number. The Kansas City Fed’s Manufacturing Index at 11:00 ET on Thursday isn’t as good a predictor, but it will add to the expectations for the national report. Neither is expected to contradict the New York and Philadelphia reports that showed expansion has faded in the face of moribund new orders.
There are two regional surveys for the service sector in October with the Philadelphia Fed’s Non-Manufacturing Index at 8:30 ET on Tuesday followed by the Richmond Fed Survey of the Service Sector at 10:00 ET. Regional data does not correlate all that well to the ISM Non-Manufacturing Index, but the overall tone of the reports should influence the outlook for the national number when it is reported at 10:00 ET on Tuesday, November 5. The Richmond Fed revenues index is the best of these in terms of gauging the direction of the ISM report. The October number from the New York Fed’s Business Leaders Survey suggested that the service sector is following manufacturing into contraction. If so, it is going to add to perceptions that a broader recession could be near.
Data on housing may continue to be one of the few bright spots for the economy. The NAR’s existing home sales data for September at 10:00 ET on Tuesday and the government report on sales of new single-family homes at 10:00 ET on Thursday will probably reflect the more elevated pace of sales seen in the August numbers. Low mortgage interest rates have benefited home sales overall, bringing first-time buyers into the market, allowing current homeowners to up- or downsize depending on their needs, and driving demand for new construction.
The FHFA House Price Index for August at 9:00 ET on Wednesday could indicate that increases in home prices have plateaued at around up 5.0% year-over-year in recent months. This is not the robust pace seen last year and will be disappointing to home sellers. However, slower price gains will give homebuyers a chance to improve affordability of their purchases in conjunction with a low mortgage rate.
The advance report on orders for durable goods in September at 8:30 ET on Thursday may get a little help from an increase in transportation orders, although broadly, new orders for durables were slow, at best. Boeing reported 25 new orders in September, an increase of 19 from the prior month. However, further cancellations of existing orders at Boeing probably means that unfilled orders will decline.
Initial jobless claims for the week ended October 12 at 8:30 ET on Thursday might rise somewhat from the 214,000 in the October 5 week. However, with a tentative agreement reached for the UAW strike at GM, businesses that provide goods and services to the auto industry will not need to layoff workers if they haven’t already. Workers laid off are likely to be recalled soon. The numbers were generally low during this strike period, so the changes won’t look like more than normal week-to-week variation.
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