U.S. Sentiment Improving, But More Hurdles Lay Ahead

The Dallas Fed factory index rose to -3.3 in October from -6.4 in September. The index bottomed in February at -56.5 and has risen steadily since.

The best news came from the six-month ahead activity index, which rose to 16.7 from 13.9. Most of the other components, though, suggest moderating activity with output, new orders, shipments, employment and unfilled orders all slipping from September readings. Prices paid increased, but prices received fell further, which warns of pressure on profit margins.

Elsewhere, the latest survey of the National Association of Business Economists also found improved sentiment. The number of member firms reporting increased demand vs. weaker demand improved to 23 in Q3, marking the first rise in five quarters. Looking out six months, more firms expect less firings and 12% now expect to add jobs (vs. 6% in July). More firms are also expected to hike capital investment than cut it; the first positive reading in a year.

The major US economic report of the week is the first (advance) read on Q3 GDP. The consensus is for a little more than 3%. The net positive contributors appear to be less of a draw down in inventories, a gain in residential investment, and somewhat stronger personal consumption (helped by transfer payments and the "cash for clunker" scheme.

The greater economic activity was probably accompanied by a lower inflating measured by the core PCE deflator. Positive growth is unlikely to prove sufficient to prompt a change in the Fed's stance, which is expected to reiterated at the conclusion of next week's FOMC meeting that economic conditions warrant exceptionally low Fed funds for an extended period of time.

Disclosure: No positions

Comments

[Donald Ingram:]

Yup! Happy days are here again! Spend! Buy more! Borrow even more. If you believe that, then good luck with that.
These type of posts are misleading.
Not as bad as. Better than fore casted. Low but not as low. Expect less firings. Less of a draw down. Somewhat stronger personal consumption.
Yup. Recovery is here. No question about it. Now, if I could find a job maybe I could go out and buy something!

Oct 26 11:26 PM