Week in Review
Last week’s economic data generally pointed to a resilient economy entering the fourth quarter. Business activity and labor market conditions remained supportive of growth, although housing activity remained weak and persistent price pressures continued to be a concern.
September housing starts fell 5.2% to an annualized pace of 1.221 million, below expectations of 1.300 million. Building permits were little changed at 1.400 million, as elevated mortgage rates, construction costs, and affordability constraints continued to weigh on housing activity.
Labor market conditions remained stable, with initial jobless claims declining to 194,000 from 199,000 the previous week. Regional manufacturing activity showed some moderation, with the Kansas City Fed Manufacturing Composite Index declining to 11 in October from 14 in September as growth in both durable and nondurable manufacturing slowed. However, expectations for future activity improved to 22 from 19, suggesting manufacturers remained relatively optimistic about the months ahead.
Business activity remained strong entering the fourth quarter, despite some moderation in the services sector. October Manufacturing Purchasing Managers’ Index (PMI) increased to 56.0 from 55.9, while Services PMI declined to 57.9 from 58.8, bringing Composite PMI down to 57.6 from 58.4. The overall reading remained firmly in expansion territory, with new orders and hiring continuing to improve. However, selling prices rose at their fastest pace since August 2022 as businesses passed higher input costs on to customers, adding to concerns that inflationary pressures remain persistent.
The October University of Michigan Consumer Sentiment Index remained subdued at 48.0, little changed from September. The Current Conditions reading fell to 46.7 from 50.9 but came in above expectations of 44.7, suggesting conditions weakened but not as much as anticipated. Year-ahead inflation expectations also increased to 4.7% from 4.6%, reinforcing concerns that higher prices continue to weigh on household confidence.
Week Ahead
The upcoming week features a busy economic calendar as investors assess the outlook for growth, inflation, and monetary policy heading into the final months of the year. Recent data have continued to point to resilient economic activity, although persistent price pressures remain a concern and could complicate the path forward for monetary policy.
Tuesday’s September durable goods orders will provide an updated look at business investment and demand for manufactured goods. Consumer confidence and new home sales will also offer further perspective on household sentiment and the housing market, where elevated borrowing costs and affordability constraints remain headwinds.
Wednesday’s Federal Open Market Committee meeting will be the week’s primary focus. Investors will closely monitor the Fed’s policy decision and accompanying statement for guidance on how officials are balancing persistent inflation against the broader growth and labor market outlook.
Thursday will bring several important updates on growth and inflation, led by the advanced estimate of third quarter gross domestic product (GDP) and September Personal Consumption Expenditures (PCE) inflation. GDP will provide an updated assessment of economic growth, while core PCE, the Fed’s preferred measure of underlying inflation, will be closely watched for signs that price pressures remain persistent. Personal spending and weekly initial jobless claims will provide additional perspective on consumer activity and labor market conditions.
Friday’s Chicago PMI will provide an updated look at regional manufacturing activity, with attention focused on whether recent strength can continue. The third-quarter Employment Cost Index will also provide further insight into wage pressures and their potential impact on inflation. Taken together, the week’s data should provide a clearer picture of economic momentum and the monetary policy outlook through the end of the year.
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