A Fed rate hike at a time when economic worries are on the rise?  Fugetaboutit! In fact, some analysts are talking up the possibility that the central bank may be forced to back-track and reverse last month’s subtle but symbolically important 25-basis-point rate hike—the first since 2006. Perhaps, but there’s no sign of an imminent retreat in the effective Fed funds rate (EFF), which ticked up to 0.37% on Wednesday (Jan. 20)–the highest in a month. That’s an interesting talking point with next week’s Fed meeting on the radar.
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● US jobless claims rise from historic low, reach 7-mo high | MarketWatch
● Americans’ Economic Expectations Brightened in Jan | Bloomberg
● Philly Fed mfg index slightly ahead of estimates but still negative | Sharecast
● Markit Flash Eurozone PMI: growth cools at start of 2016 | Markit
● ECB’s Draghi calms markets with hint of more stimulus | CNN
● Stocks, oil soar on Fri as Draghi the dove tames global bears | Reuters
● This Time, Cheaper Oil Does Little for the U.S. Economy | NY Times
● Talk of a downturn is in the air, and the numbers are squiggly | Bloomberg

The three-month average of the Chicago Fed National Activity Index (CFNAI) is expected to post a slight improvement in the December update that’s scheduled for tomorrow (Jan. 22), based on The Capital Spectator’s average point forecast for several econometric estimates. The projection for -0.13 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 December 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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Another day, another (modestly) disappointing economic report. This time it’s the labor market. Initial jobless claims unexpectedly increased 10,000 last week to a seasonally adjusted 293,000, the Labor Department reports. That’s still low by historical standards, but economists were looking for a modest decline. Instead, new filings for unemployment benefits rose for the week through Jan. 16 to the highest level since last July. The good news: claims are still falling on a year-over-year basis. Unfortunately, the annual decline continues to wither; the latest decrease–down 2.7% vs. the year-ago figure–is the smallest since early December.
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Mr. Market’s outlook has turned darker lately. The ongoing slide in stocks and oil, combined with an increase in the spread in junk yields over Treasuries, is creating deeper doubts about the strength of the US economy. The Treasury yield curve is still positively sloped, which implies that growth will survive. But some analysts say that this historically valuable indicator is less reliable these days because of extreme measures with monetary policy in recent years.
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● US housing starts fall 2.5% in Dec | MarketWatch
● Consumer prices drop as falling oil costs push inflation lower | LA Times
● US Redbook: retail sales growth cooled in Jan’s 2nd week | MNI
● US mortgage applications popped 9% last week | CNBC
● How to Make Sense of Plummeting Global Markets | NY Times
● Oil prices fall near 2003 lows on oversupply, demand worries | Reuters
● How Far Will Markets Fall? Top Investors See No Bottom Yet | Bloomberg

With the US stock market falling like a concrete blimp today, it’s painfully obvious that darkness has descended across the equity landscape. Not surprisingly, the S&P 500 Crash Risk Index (a set of quantitative metrics collectively labeled as such on these pages) crossed the tipping point last Friday (Jan. 15) and will probably remain in an ominous posture once the carnage in today’s action officially goes into the history books. Let’s review a few details, if only for academic reasons.
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And that makes three in a row. Last Friday’s double shot of disappointing economic news in December for retail sales and industrial output was joined by today’s surprisingly soft numbers for residential construction.
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Inflation expectations in the US are sliding again, raising new concerns about the economic outlook. Perhaps today’s update on consumer prices for December (due out at 8:30 am eastern) will allay fears that disinflation risk has reaccelerated. Meantime, Mr. Market has been lowering his outlook for pricing pressure… again.
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● US Home builder confidence steady in Jan | USA Today
● US Economic Confidence Index Rises, Highest Since June | Gallup
● The Debate on Whether America’s Best Days Are Past, or Ahead | NY Times
● Confidence among CEOs sags as China’s slowdown spooks Davos | Reuters
● World faces wave of epic debt defaults, central bank veteran warns | Telegraph
● MSCI All-Country World Stock Index on brink of bear market | Bloomberg
● Mark Carney rules out imminent interest rate rise for UK | Telegraph
● UK unemployment rate fell to its lowest level since 2005 | MNI