When Chicago and Dallas Economic Data Both Look Weak

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Friday’s report showing 2.9% growth in third-quarter gross domestic product (GDP) may have gotten everyone’s mood off to a good start for the fourth quarter. The problem isn’t that the September data was looking better than the August and July data. The problem for the fourth quarter is that much of the economic reporting on a more live basis is very mixed for what has been released for October.

Monday’s economic data showed that Americans were saving less of their disposable income. More importantly, manufacturing reports were not in growth mode.

The Chicago PMI has not been steady for growth readings so far in 2016, but it came down 3.6 points at 50.6 for October. Bloomberg had the consensus estimate at 54.3 and the lowest of all estimates in the Econoday range was 53.1 — so this was worse than all estimates from economists.

New orders and production were slowing inside the PMI. Still, employment was strong and prices paid were up the most in almost two years. Manufacturing and non-manufacturing firms both are surveyed as this is the final PMI report.

The Dallas Fed Manufacturing Outlook Index may look like an improvement from September as its general activity index rose to -1.5 from -3.7 in September. The production index fell to 6.7 from 16.7 in the prior month. This regional region for the oil patch has been trending soft for over 18 months now.

Lindsey M. Piegza, Chief Economist of Stifel Fixed Income, said of the two reports:

One of the first data points for the fourth-quarter, the unexpected drop in the Chicago PMI strikes a weak tone, suggesting U.S. manufacturing may continue to struggle after relative improvement in recent months.  Regional weakness, as in the Dallas Index affirms a deteriorating outlook.  At this point, any further adjustment to monetary policy (come December?) will likely compound the pressure on domestic producers with a stronger dollar undermining demand for U.S. exports.

Neither one of these reports may be enough to force the Federal Reserve’s hand on interest rates in November ahead of the election. That being said, it is hard to see how they will force the Fed into a race to tighten in December — although they remain more likely than not to hike in December.

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