KEY DATA: Home Sales: +1.5%; Leading Indicators: +0.9%; Phila. Fed: up 20.1 points

IN A NUTSHELL:   “It is looking more and more like the economy is accelerating.”

WHAT IT MEANS:  Where should I start?  How about the outlook for the future?  The Conference Board’s Index of Leading Indicators jumped for the second consecutive month, and the stock market didn’t even help this time!  If this measure has any predictive capacity, and it does, then it is pointing to a lot stronger growth in the months to come.  A second indication that growth may be picking up was the huge increase in the Philadelphia Federal Reserve Board’s Business Outlook Survey’s activity index.  This index does bounce around but the enormous rise points to a clearly improving manufacturing sector.  There was a special set of questions asked about employment and almost 56% of the respondents say that they expect to hire in the next twelve months.  That is up about ten percentage points since January and the major reason is that firms expect sales to rise.  The positive sales outlook should not be a surprise given that only 1.7% of the respondents expect growth to slow over the next six months.

For the economy to really hit its stride, we need the housing market to at least hold up its part of the deal.  Existing home sales rose in October and demand has finally clawed back above where it was when rates spiked.  For the first time since October 2013, the year-over-year change was positive.  The increases across the nation were solid but there was a decline in demand in the West.  Prices seem to firming again, in part because of the inventory is shrinking.  Rising prices is critical if homeowners are to have enough equity to sell their current houses and move into different ones.  That churn has been missing from the market.

MARKETS AND FED POLICY IMPLICATIONS:  What a day for the economic data.  While overall inflation may be restrained, we saw that services inflation is coming back and the level of jobless claims points to additional strong employment reports.  Now it appears that housing is picking up, albeit slowly, while manufacturing may be poised for a large increase.  When you add those numbers the jump in the leading indicators, you really have to feel optimistic about the economy.  The Fed is debating the use of the term “considerable time” when it comes to keeping rates low.  But the members may dump that phrase as early as the mid-December FOMC meeting if the economic numbers continue to show increasing economic and labor market strength.  They may also have to start talking about services inflation, something that really needs to get the attention that has been missing.  But investors like to focus on the positive and the latest numbers only feed the bullish beast.