KEY DATA: Starts: -5.8%; Permits: -0.4%/ Philly Fed: -0.7 point; Orders: -4.1 points

IN A NUTSHELL: “Moderating housing activity could add more angst to the Fed meeting.”

WHAT IT MEANS: The FOMC is starting its two-day meeting and the data-dependent diviners of our economic and financial future did not get particularly great news today. On the housing front, new construction activity eased more than expected in August. The fall off in housing starts was evenly split between the single-family and multi-family segments. But the regional changes were quite uneven. There was a double-digit decline in the South, strong increases in the Northeast and Midwest and a modest rise in the West. Since the South makes up about half of all home construction, weakness there can overwhelm gains in the rest of the country. As for the future, permit requests eased. Most economists expected a rise. Once again, a sharp drop in the South overcame modest increases in the remainder of the country. For most of this year and for the past three months, permit requests have lagged starts. That is not a positive sign for future construction activity. That said, the National Association of Homebuilders/Wells Fargo index surged in September. (This report was released yesterday.) The level is similar to what we saw in the 2000s when construction was booming. The homebuilders and the government seem to be on different pages.

Activity in the non-manufacturing portion of the Mid-Atlantic regional economy is expanding but not accelerating. The Philadelphia Federal Reserve’s September index of regional activity eased a touch as new orders slowed. There were some fascinating results in the components of the index. Firms expect to hire more full time workers but cut back on part-timers. I had noted that one way to deal with the dearth of available workers was to move part-timers into full-time positions and that could be happening. Also, while respondents were not very upbeat about the current state of their own businesses, their expectations of the future for both the region’s economy and their individual companies improved. This is a trend that has been underway for about six months and hopefully, reality will catch up with perceptions.

MARKETS AND FED POLICY IMPLICATIONS: With the Fed meeting going on, investors are will likely remain cautious until the statement is released tomorrow. The FOMC is not expected to raise rates but the members may finally indicate that they really do intend to raise rates and it might actually occur this year. The housing numbers are another reason for the FOMC to stand pat, though if you believe the homebuilders, conditions are changing. Of course, this is a Fed that sees a bad number and immediately scrambles for cover, so who knows what will happen. My thinking is that there will be a stronger statement about the potential for rate hikes and Chair Yellen will confirm that at her press conference. She will also leave an opening to do nothing, of course. My hope is that the data dependency aspect of their strategy will be downgraded. If that is the case, they will have more flexibility to do something even if the numbers are not supportive of that action.