KEY DATA: ISM (Manufacturing): +0.4 points; Orders: -3.0 points; Hiring: +3.2 points/ Construction: -0.4%; Private: -0.2%

IN A NUTSHELL: “While the manufacturing sector continues to rebound, non-residential construction remains in the doldrums.”

WHAT IT MEANS: The FOMC meeting is today and tomorrow morning and the incoming data are not likely to change any minds. The Institute for Supply Management’s reading on October manufacturing activity index rose in October, its second consecutive increase. The malaise that gripped the sector in August seems to have dissipated. The details don’t tell a particularly consistent story. While production and employment expanded faster, new orders grew more slowly and order books thinned. The decline in orders occurred in spite of rising export and import demand. Strangely, there is a growing inability to get goods out the door. So, what exactly is happening is unclear, but it does look like this sector is not only growing again but is likely that activity is accelerating.

The oddities in the manufacturing sector may be, at least in part, a function of the issues in the construction sector. Total construction spending fell in September, but the major problem was nonresidential activity. If businesses are not building, demand for the goods that go into the construction process and into the offices and plants is not going to increase either. Key segments, such as office and manufacturing, were down. The government was also doing its best to keep growth from accelerating as it too cut back spending on almost every major category. Thankfully, there was some rise in highway construction and health care. On the other hand, residential construction spending rose solidly. Residential investment was down sharply in the initial GDP estimate and I wouldn’t be surprised if that was revised to show a much smaller decline. CoreLogic reported that home prices rose sharply in September and are up 6.3% over the year. It was also noted that “home-equity wealth has doubled during the last five years”. That should mean more homeowners can list their houses for sale, which should lead to greater sales of both new and existing homes, even if price increases slow going forward.

MARKETS AND FED POLICY IMPLICATIONS: The only major number that left to be released before the Fed issues its statement at 2:00 PM on Wednesday is the ADP October private sector job gains estimate. But this is not a government figure and it can differ sharply from the Bureau of Labor Statistics number. In other words, the economy we already see is the economy the FOMC members will be discussing. There is nothing that screams, “raise rates”, and it is highly unlikely the Fed will do that. With the October employment report coming out on Friday and the election next week, there is no reason to go out on the limb. Look for the statement to hint at a December rate hike. The strength of the hint will determine the reaction of investors. But given the political mess, I am more interested in what is said in the first set of Fed members’ speeches after the election than in tomorrow’s statement.