The three-month average of the Chicago Fed National Activity Index (CFNAI) is expected to post a slight rise in the November update that’s scheduled for Monday (Dec. 21), based on The Capital Spectator’s average point forecast for several econometric estimates. The projection for -0.14 reflects a modest improvement over the previous month, which indicated US economic activity that’s moderately below the historical trend rate of growth. Only negative values below -0.70 signal an “increasing likelihood” that a recession has started, according to guidelines from the Chicago Fed. Using today’s average estimate for November as a guide, CFNAI’s three-month average is expected to reflect an expansion that’s moderately below the historical trend but still above the tipping point that marks the start of a new US recession.
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The manufacturing sector may be in recession, but the labor market still looks resilient. That’s the key message in recent economic updates. It’s anyone’s guess if this skewed relationship will endure, but for the moment it’s enough to keep the threat of recession in the category of a low-probability event, based on numbers published to date. With so much riding on payrolls these days, a stumble in job growth right about now would be a problem. But that’s not a real and present danger, according to yesterday’s weekly update on new filings for unemployment benefits.
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● US jobless claims fall from 5-month high | MarketWatch
● Pondering Janet Yellen’s rate-hike “gamble” | Telegraph
● Philly Fed manufacturing goes negative in Dec | RTT
● US Leading Economic Indicator rises in Nov | RTT
● US consumer economic expectations stabilized in Dec | Bloomberg
● Mexico raises key interest rate after Fed hike | Bloomberg

The Federal Reserve yesterday raised its target range for the Fed funds rate by 25 basis points to 0.25% to 0.50%–the first hike in nine years. The reasoning, as the Fed explained, is the “considerable improvement in labor market conditions this year” and the outlook for inflation “will rise, over the medium term, to its 2 percent objective.” But the economic data is mixed, as yesterday’s sharply divergent US macro updates remind. Housing starts rebounded smartly in November, but industrial production tumbled 0.6% last month—the biggest monthly decline in more than three years. As a result, output is now contracting by more than 1% a year.
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● Fed raises target rate by 25bp–first hike in 9 years | WaPo
● Slight changes for Fed’s new median macro forecasts | Federal Reserve
● US housing starts and building permits rebound in November | NY Times
● US industrial output slumps in Nov; manufacturing flat | MarketWatch●
● US Mfg PMI slips to 3-year low in Dec | Markit
● German business sentiment dips but still at high level | Reuters

Three economic reports arrived this morning, presenting the last round of numbers ahead of this afternoon’s policy statement from the Federal Reserve that’s expected to roll out the first interest-rate hike in nine years. How do the latest figures stack up? Overall, it’s a mixed bag. Housing starts rebounded nicely in November, but industrial output continued to weaken last month. Meantime, the flash December data for Markit’s purchasing managers’ index for manufacturing is still pointing to growth, but the trend is stumbling. Will the numbers du jour convince the Fed to delay a rate hike yet again? Hard to say. In any case, let’s quickly review the latest data dump ahead of the Fed announcement.
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The crowd’s expecting a rate hike when the Federal Reserve publishes its policy statement today at 2:00 pm eastern. Fed fund futures and the 2-year Treasury yield, for example, are telling us that today’s the day when the central bank begins raising its target rate for the first time in nine years.
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● US Consumer inflation flat in Nov, up 0.5% YoY | USA Today
● NY Fed mfg index still negative, but contraction eases in Dec | MarketWatch
● US homebuilder confidence dips in Dec but remains high | The Hill
● Eurozone Composite PMI dips to 2-mo low in Dec | Markit
● Germany Composite PMI slips to 2-mo low in Dec | Markit
● UK jobless rate falls to 5.2%, lowest since 2008 | Bloomberg
● German investor sentiment ticks higher in Dec | RTE

US industrial production is expected to post a modest rebound, rising 0.1% in tomorrow’s November report vs. the previous month, according to The Capital Spectator’s average point forecast for several econometric estimates. The forecast contrasts with the previously reported 0.2% decline in October.
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Housing starts are expected to rebound to 1.100 million units (seasonally adjusted annual rate) in tomorrow’s November update, according to The Capital Spectator’s average point forecast of several econometric estimates. The projection represents a modest gain over the previous month’s report for residential construction activity.
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