KEY DATA: Durables: -0.1%; Less Aircraft: +0.5%/ Pending Sales: +1.5%/ Claims: -3,000

IN A NUTSHELL: “The economic data don’t require the Fed to do anything at next week’s meeting.”

WHAT IT MEANS: If the Fed members are being driven by the data, they really don’t have to worry that the numbers are pushing them to do anything. Durable goods orders were largely flat in September as sharp declines in demand for computers, communications equipment and especially defense aircraft were mostly offset by a rise in demand for civilian aircraft, machinery, motor vehicles and electrical equipment and appliances. Basically, some sector did well while other didn’t, which has been the story of this recovery. There was one disturbing aspect of the report: Private sector capital spending broke its winning streak as businesses cut back on their investment activities.

Meanwhile, there were more signs that the housing market is improving. Pending home sales rose solidly in September led by a jump in demand in the West and a solid rise in the South. However, contract signings were down in the Northeast and Midwest. Both new and existing home sales have been trending upward and this report indicates that pattern should continue.

New claims for unemployment insurance eased last week. Given the size of the economy and the dynamic nature of the labor market, we are basically at the bottom. We could have numbers below the current levels but it is hard to see that they would stay that way for very long.

There were two other numbers released today that point to a better economy. The Richmond Fed’s manufacturing index posted its second consecutive rise in activity. This part of the country had been hurting and its turnaround is good to see. Also, the homeownership rate rose in the third quarter. The rate has been trending downward since 2004 and maybe Millennials, who are entering their thirties, are finally starting to buy houses.  

 

MARKETS AND FED POLICY IMPLICATIONS: Janet Yellen and her band of fearless monetary policymakers skate into next week’s FOMC meeting with little worry about having to raise rates. With a rate hike having become a political issue, if the Fed fiddled while the economy burned, there would be a problem. But this economy simply continues to grow at a trend rate meaning the Fed has the option to do what it wants – which is likely nothing. As for investors, while it is still all about earnings, the election is a cloud hanging over everything. In two weeks, we should be done with this horror, but until then, don’t expect any great movement.