KEY DATA: Durables: 0%; Excluding Aircraft: +0.6%; Capital Spending: +0.6%
IN A NUTSHELL: “Businesses look like they are spending again and that is good news for future growth.â€
WHAT IT MEANS: Corporate capital spending has been weak this year, in no small part because of the collapse of the energy sector and its related industries, but that may be changing. Orders for big-ticket items were flat in August, but that was due to a large drop in civilian aircraft demand. Of course, the 22% decline came after a 74% rise in July, so you can see why it is important to exclude aircraft, both civilian and defense, from the numbers. Doing so led to a solid increase in durable goods orders. That said, the details of the report were not that great as most of the gain came from two industries, motor vehicles and communications. The rest were down. But there was some truly positive news in the report. The best measure of business capital spending, which excludes defense and aircraft, posted its third consecutive rise. Total orders are down over the year, but the declines are slowing.
There was other data released earlier this week. Most notably, yesterday, the Conference Board reported that consumer confidence surged in September to its highest point since the recession. People are becoming more positive about the labor market. On the housing front, new home sales were off more than expected in August. They had jumped in July, so some give back was expected, but it was larger than forecast. Again, a lack of homes for sale continues to plague the housing market. That said, home price increases are not accelerating sharply. In July, the S&P/Case Shiller National home price index was up 5.1% over the year. That was a small acceleration from the 5% rise posted in June. Pricing pressures should continue to build as long as inventory remains low.
 MARKETS AND FED POLICY IMPLICATIONS: It looks like the Fed members are starting to send a loud and clear message that rates are going up. San Francisco Fed President Williams, a non-voting member, chimed in that the economy can absorb a rate hike, adding to the dissenting voices heard at the FOMC meeting. There were three voters who wanted to raise rates in September. As expected, Chair Yellen told Congress there was no set timetable for a rate hike. Given the number of times the Fed has come up to the edge of a hike only to back down, that was hardly news. But the recent data, though not great, are still positive enough to provide some reason to think the Fed feet of stone will start to shuffle back to the rate hike precipice. With the next FOMC meeting ending on November 2nd, only six days before the election, don’t expect anything to happen then. But December remains open. Of course, if the data don’t say go, the Fed won’t show, which is the problem with data dependency.