Since we’re no longer playing ‘catch-up’ with the economic data, there happened to be a lot of it.

(+) The Chicago PMI rose significantly higher over the past month, from September’s 55.7 to 65.9 in October (surpassing a forecasted flattish 55.0 level).  Notably, this was the largest monthly increase in some 30 years.  While no special/unusual factors were mentioned, the improvement originated from strong results in new orders and production, while employment was also up around 5 points (a strong showing in that struggling area).  The exceptional results here are a bit in contrast to other regional Fed measures that haven’t kept up the same pace (some even coming in negative).  So, it’s too early to get overly exuberant but it’s a step in the right direction.

(+) The ISM Manufacturing Index report also improved a bit from Sept. to Oct., from 56.2 to 56.4, which surpassed an expected deterioration to 55.0 and represents the highest level in 2½ years.  The headline index was a big stronger than the details, as employment and production declined a bit, while new orders improved slightly and inventories scoring better.  These two closely-monitored manufacturing indexes are indications of some improvement yet again and perhaps some traction from a skidding few weeks.  The government slowdown also appears to have done little damage to the overall economy.  The chart and table below show the trend in the overall index itself and various sub-components.

(0/+) Industrial production rose +0.6%, which outperformed the expected +0.4% gain.  However, much of this was due to a 5% gain in the electric utilities sector, which tends to have more sporadic results, while manufacturing production was up slightly and led by auto assemblies.  Removing autos, production was essentially flat.  Capacity utilization rose to 78.3% for September, compared to the 78.0% anticipated.  August business inventories gained +0.3%, on par with forecast, as were the underlying retail and manufacturing subcomponents.  The rate of inventory accumulation has increased a bit since last quarter.

(0) Retail sales came in mixed to better, with the headline number negative at -0.1% for September versus expectations of no change.  The more meaningful core figure, which excludes the more volatile components like gasoline, homebuilding and autos, and is used by the government to estimate consumer spending in GDP, gained +0.5%, which surpassed expectations by a tick.  The difference was accounted for by a drop in auto sales.  Otherwise, restaurants, food/beverage and electronics/appliances were up nearly a percent in the month, with sporting goods/hobby/music/books up half a percent as well.  The underlying theme is stronger consumer behavior on the month in several areas, but now we approach the critical Holiday season where same store sales releases will be watched increasingly closely.

(+) U.S. auto sales for October picked up after the government shutdown caused a bit of apparent pent-up demand, up +10.6% for the month to 1.2 million cars/trucks.  GM and Ford were both up in the 15% range, and included both regular passenger cars and trucks in the best-selling category.  In fact, the industry is looking to have its best sales year in the last six.  Foreign car sales were also up, but slightly trailed figures from the U.S. makers.

(0) Inflation was tempered yet again.  Headline CPI rose +0.2% for September, which was on line with the forecasted increase, while core CPI only rose +0.12%, underwhelming the expected +0.2%.  Year-over-year, the headline and core CPI numbers rose +1.2% and +1.8%, respectively, which are far below the long-term trend as well as the Fed’s intended target.  In the details of the report, the small increase in the headline came from a less dramatic than normal seasonal decline in gasoline; in the core, primary residence and owners’ equivalent rent have both been rising for a few months, while apparel prices fell about a half-percent.

PPI, which is more directly tied to producer input costs and runs a bit in advance of CPI, fell -0.1% in September (a relative surprise, with the median forecast calling for a +0.2% increase), while the core PPI number rose on target at +0.1%.  Food prices falling -1% for the month accounted for much of the difference.  For the full year, finished good prices rose +0.3% and core prices gained +1.2%.  More on the inflation situation below under the ‘question of the week.’

(+) The S&P/Case-Shiller home price index rose +0.93% for August, which bested a forecasted +0.63% gain, as home prices continue to roll along the road of improvement.  The ‘sand state’ markets of Las Vegas, LA and San Diego gained +2% each, which continues the recovery leadership of the post-bust period.  The year-over-year index change improved to +13%, which is the strongest since 2006 (interesting for perspective’s sake).

(-) Pending home sales fell -5.6% for September, which was a disappointment compared to the flat reading anticipated; actually, this was the worst decline since April 2011 and took the index back to its late 2012 level.  All major regions dropped by 8-9%, except for the South, which fell just marginally and kept the overall number respectable.  This weak pending number bodes poorly for existing home sales over the next few months.

(-) The Conference Board consumer confidence reading fell from September’s 80.2 to 71.2 in October (underperforming a consensus guess of 75.0).  Consumer assessments of current conditions fell a few points, while future expectations dropped even more dramatically.  The labor differential that measures job plentifulness also deteriorated a bit.  Like the Univ. of Michigan survey, this likely had some tie-in to the frustration around the government shutdown, so has to be taken in context.  Such frustration usually dissipates before too long and another issue will take its place.

(-) The ADP employment report showed a gain of +130k for October, which underperformed the median estimate of +150k.  In addition, the September figure was revised downward by -21k down to 145k, closer in line to the government BLS number.  Professional and business services job growth has been steadily weak, with a +20k gain last month, and financial employment fell -6k.  Construction employment, however, gained 14k.  Notably, the ADP series only covers private payrolls so the government shutdown effect wasn’t/won’t be reflected.

(0) Initial jobless claims for the Oct. 26 week fell from 350k to 340k (relative to a consensus prediction of 338k), as the California labor department has finally worked through its computer transition and claims backlog issues that were distorting numbers over the last few months.  Continuing claims for the Oct. 19 week came in at 2,881k, higher than the 2,870k expected.  (Federal worker claims for the Oct. 19 week fell to 14k, which are not captured in the main series, so this affect has been tapering off as well.  Non-federal but related workers claims may still be playing a small role, but we also expect this effect to be lessening.)