Weekly Economic Cheat Sheet 11/23/15

Last Week

Economic data last week largely met expectations and the key takeaway was that the data further reinforced the expectation by the market that a rate hike is coming in December.

Starting with the manufacturing sector, there were three notable releases: Two from November (Empire Manufacturing Survey and Philly Fed Survey) and one from October (Industrial Production). And, they all said the same thing: While the absolute state of manufacturing activity in the US remains sluggish due to a strong dollar and slack international demand, manufacturing activity in the US isn’t getting any worse and is showing some signs of stabilization, which is a relative positive.

Empire and Philly Manufacturing Surveys were mixed as Empire missed estimates (-10.7 vs. (E) -5.0) while Philly slightly beat estimates (1.9 vs. (E) 0.0). Positively, both results were improvements over October and the details of each were encouraging (New Orders, the leading indicator for each survey, remained negative but increased from October levels). So, there were signs within these surveys that again point to stabilization in the manufacturing sector.

October Industrial Production slightly missed the headlined (up 0.1% vs. (E) 0.2%) but that was misleading as the weakness was due to utility and mining production. The manufacturing sub-index rose a healthy 0.4% (meeting expectations) and importantly the August manufacturing sub-index was revised higher from –0.4% to –0.2%, again implying stabilization. Bottom line, the manufacturing data, while not great in an absolute sense, won’t make the Fed re-think a rate hike in December.

Other economic data from last week was largely in line with expectations. October CPI met estimates and the core year-over-year metric was unchanged from October at 1.9%. But, non-commodity-related inflation continues to show signs of bottoming and an upside surprise in inflation may finally be in the cards for Q1 2016. Notably, service sector inflation rose 0.3% in October, which is a pretty hot pace.

Looking at the Fed, the highlight was the FOMC minutes released last Wednesday, but there was again a small army of Fed speakers throughout last week. The market liked the FOMC minutes because while it further solidified the expectation for a December rate hike, the minutes also highlighted the desire of the FOMC to raise rates very gradually, reflecting the “one-and-done” policy that stock investors are craving (and as a result is was spun as dovish). Whether the FOMC can be that gradual will depend on inflation (which they have a bad history of forecasting) but last week the FOMC minutes were taken as incrementally dovish over the longer term.

This Week

This will be a holiday-shortened week but there’s going to be a fair amount of important data crammed in between now and Wednesday. The two highlights will be the flash November manufacturing PMIs out later this morning, and then the Core PCE Price Index contained in the October Personal Income and Outlays Report out Wednesday morning.

Those are important because they are the only ones that have the potential to shift the Fed’s opinion on a rate hike in December. But, to be fair, both readings will have to be awful to make the Fed reconsider December (something like a flash PMI well below 50 and y-o-y Core PCE Price Index well below 1.3%).

Beyond those two numbers, the next most important report is the revised Q3 GDP out tomorrow (there are no major revisions expected and the key detail in this report will be the PCE data, i.e. consumer spending).

October housing reports continue this week with Existing Home Sales reported later this morning and New Home Sales released Wednesday. Housing showed some signs of losing momentum in September, so these reports will carry a bit more weight than usual, although again they would have to be horrid to make the Fed reconsider December.