KEY DATA:  Sales: +0.3%; Ex-Vehicles: +0.2%; Gasoline: 1.1%/ IP: -0.8%; Manufacturing: -0.6%/ Import Prices: -0.5%; Nonfuel: -0.2%; Exports: -0.1%; Farm: +1.9%

IN A NUTSHELL:  “With households not shopping that much, there isn’t a whole lot of need for the nation’s factories to keep producing as much.  ”

WHAT IT MEANS:  With the Fed indicating it is on hold for an extended period – unless economic conditions change significantly – we need to determine if those conditions are being met.  Let’s start with consumer spending.  Retail sales were tepid in October.  They were bolstered by a sharp rise in gasoline purchases, but that was driven by a sharp rise in prices.  Vehicle demand was solid, but September’s was so weak that the level of sales in October remained below the August total.  Other big-ticket purchases, such as furniture, electronics and appliances, were off, which is not a great sign.  Online sales, however, were strong, but restaurants saw activity falter.  Basically, there were ups and downs that support the view that consumer demand was mediocre.

Meanwhile, back at the factory, the assembly lines slowed once again.  Manufacturing output fell sharply for the second consecutive month, led by a third consecutive major drop in motor vehicle assemblies.  Seven of the eleven durable goods sectors and six of the eight nondurables sectors posted declines.  In other words, the cut back in production was wide spread.  Over the year, manufacturing output is off by 1.5%, a clear sign that this segment of the economy has hit a rough spot. 

As for inflation, if it is to keep accelerating, the pricing pressures will have to come form someplace other than imports.  Import costs fell sharply and have been up only once in the last five months.  Yes, fuel prices jumped, but nonfuel costs fell and have risen only once this year.  Food, capital goods and consumer goods prices were down while vehicle costs were flat.  As long as the dollar stays strong, import prices will not surge and inflation will likely remain in check.  On the export side, farm prices jumped again, but nonfood export prices were down.  MARKETS AND FED POLICY IMPLICATIONS: Okay, here’s the story: When if comes to the economy, listen to what Fed Chair Powell says and assume the opposite.  Well, maybe I am being too harsh, but this week, Mr. Powell was telling us that when it came to the U.S. economy, we are the stars!  Of course, with Europe barely keeping its head above water and Asia slowing, that may be the case.  But it still doesn’t say much.  Today we found out that maybe the U.S. economy is growing, but not at any great pace.  The consumer is still spending, but not robustly enough to support other sectors, especially business investment, which has been faltering.  And on top of that, manufacturing is contracting.   Even if a phase one mini deal is consummated, it doesn’t get us anywhere near back to where things were before the trade war began nearly twenty months ago.   So why anyone would think the economy would soar as a consequence is beyond me, but I am just looking at this as an economist.  As far as investors are concerned, any good news on the trade front is another excuse to push the market up.  Meanwhile, the Fed members will continue to pat themselves on their backs and claim to be doing a great job.  We shall see about that in 2020.