US economic growth was softer than expected in September, according to this morning’s update of the Chicago Fed National Activity Index’s three-month moving average (CFNAI-MA3). Last month’s reading dipped to -0.09, the lowest since this past May. Despite the latest slide, this benchmark of economic activity remains well above its -0.70 tipping point that marks the start of recessions, according to Chicago Fed guidelines. But while the US avoided a downturn last month, it’s clear that growth is still sluggish and will probably remain so for the near term. Indeed, the Atlanta Fed’s current nowcast (as of Oct. 20) for third-quarter GDP is a weak 0.9% (seasonally adjusted annualized rate), well below Q2’s strong 3.9% rise.
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Consumer discretionary stocks have strengthened their lead among the major US equity sectors this month, based on trailing one-year total return data for a set of ETF proxies. After bumping healthcare shares from the top spot recently, the Consumer Discretionary SPDR ETF (XLY) has widened its performance edge over the rest of the field in October.
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● US mortgage applications bounce back after reg change | CNBC
● US existing home sales expected to inch higher in September | MNI
● French business confidence at 4-year high in October | Bloomberg
● UK retail sales post strong rise in September | MNI
● ECB expected to hint at more stimulus today | Reuters
● Spain’s jobless rate falls to 4-year low in Q3 | Bloomberg

The three-month average of the Chicago Fed National Activity Index (CFNAI) is expected to tick higher in the September update that’s scheduled for tomorrow (Oct. 22), based on The Capital Spectator’s average point forecast for several econometric estimates. The projection for +0.05 is slightly above August’s +0.01 reading, which reflects US economic activity that’s close to the historical trend rate of growth. Only negative values below -0.70 indicate an “increasing likelihood” that a recession has started, according to guidelines from the Chicago Fed. Using today’s estimate for September as a guide, CFNAI’s three-month average is expected to reflect an expansion that’s slightly above the historical trend and therefore well above the tipping point that marks the start of a new US recession.
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Deutsche Bank’s chief international economist advises that the US isn’t tipping into a recession. “There is a big disconnect between the current narrative in both equity and rates markets and the actual economic data,” he says via Bloomberg. “This economy is stronger than its reputation and for some reason many investors want to hold onto the 2009 story of ‘the economy is not good’ “.
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● US housing starts rise in September, near 8-year high | MarketWatch
● GDPNow model Q3 growth estimate unchanged at 0.9% | Atlanta Fed
● Redbook: US retail sales fall in first half of Oct vs Sep | DJ
● DB’s Sløk says US not entering recession | Bloomberg
● ECB faces obstacles for accelerating QE | Bloomberg
● Japan’s export growth slows on lower demand from China | MNI

US residential construction, driven by a surge in new multi-family projects, increased by a solid 6.5% in September, the Census Bureau reports. The rise beat forecasts and signals that the housing market remained on a recovery track. At the same time, newly issued building permits dipped 5% last month, suggesting that the housing market’s growth will remain moderate.
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The on-again-off-again economic recovery is having a tough time convincing the crowd to price in higher US Treasury yields, but maybe political gridlock in Washington can push rates higher. In fact, some of the short maturity Treasuries that are thought to be at risk of not being repaid because of debt-ceiling uncertainty have endured selling to the point that their yields have shot up to two-year highs, according to The Wall Street Journal. Dysfunctional politics in Washington is old news, but perhaps there’s a new if not-entirely intentional byproduct: higher rates.
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● US homebuilder confidence rises to 10yr high in Oct | The Atlantic
● SF Fed President Williams sees case for US rate hike soon | Bloomberg
● Treasury Secretary Lew is worried about Nov. 3 debt ceiling deadline | CNBC
● T-bill yields rise to 2-Year high on debt-ceiling worries | WSJ
● Lending standards continue to ease in Eurozone | RTE
● Germany’s deflation in factory prices rolls on in Sep | MarketWatch
● Trudeau’s election as PM leads Liberals back to power in Canada | BBC

Housing starts are expected to rise modestly to 1.147 million units (seasonally adjusted annual rate) in tomorrow’s September update, according to The Capital Spectator’s average point forecast for several econometric estimates. The projection represents an increase from 1.126 million units in the previous month’s report for residential construction activity.
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