It has been confirmed that Fed Reserve Chair Janet Yellen will go before the House Financial Services Committee on Nov. 4, to give testimony on a wide range of issues bordering on the state of the US economy and regulation. That now makes 2 congressional hearings and a speech scheduled for the Fed chief between the FOMC’s October and December meetings. Even though the Fed isn’t expected to raise rates at the conclusion of its meeting on Wednesday October 28, investors will be watching closely for any change in language that could signal the timing of interest rates. If there are suggestions that a December rate increase is not on the cards, US Treasurys could receive a boost according to Stanley Sun of Nomura Securities.
“The key issue is not in what action they take (today), but more in what signals they send for December,” Sun says. “Even though the Fed might prefer to keep December on the table, it’s kind of getting increasingly hard…as far as data is concerned, it hasn’t been strong enough to make the case for liftoff.”
In other news released on Tuesday October 27, the Conference Board’s Index of consumer confidence fell to 97.6 in October from a revised 102.6 in September. The initial September reading was 103.0. Economists surveyed by The Wall Street Journal had expected a reading of 102.8. “Despite the decline, consumers still rate current conditions favorably, but they do not anticipate the economy strengthening much in the near-term,” said Lynn Franco, director of economic indicators at the board.
This news was preceded by the U.S. Durable Orders release, with figures showing a decrease of 1.2% in September. Orders for long-lasting manufactured goods show the state of health of U.S. factories and can have a significant impact on economic growth. New orders for durable goods such as trucks and other products designed to last at least three years, suffered a seasonally-adjusted decline of 1.2% in September when compared with figures from a month earlier, the Commerce Department said Tuesday. The figures for August durable goods orders were also revised to 3%.
“This was a very disappointing report, and it speaks to the continued drag from global uncertainties on domestic economic activity,” Millan Mulraine, deputy chief U.S. macro strategist at TD Securities, said in a note to clients.
It must be said however that the durable goods numbers are highly prone to significant revisions. However, Tuesday’s numbers are in tandem with the broader situation caused by low oil prices, a strong dollar and slower overseas growth, which has curtailed demand for many manufactured products. A chunk of the durable goods orders decline was caused by a reduction in demand for aircraft, with Boeing Co. reporting that it only received 29 orders last month versus 52 in August.
“The industrial sector…is close to being in recession and would probably be in one if not for the strength in vehicle production,” Steve Blitz, chief economist at Investment Technology Group, said in a note to clients. Business investment peaked in September 2014 but has since trended lower, in part reflecting a hefty drop in spending on oil and gas field machinery. As of August, the most recent figures available, new orders for such equipment had been cut in half. A stronger U.S. dollar and weak overseas demand also have constrained sales. The stronger dollar makes U.S. products more expensive abroad and foreign goods cheaper at home.
The durable goods numbers are the final data set that will figure into Thursday’s gross domestic product report for the third quarter of the year. Economists are forecasting GDP growth of 1.5% for the period, though the latest data sent some estimates lower.
J.P. Morgan Chase now believes GDP expanded at 0.6% seasonally adjusted annual rate, down from an earlier estimate of 0.8%, Barclays tracking estimate fell two-tenths to 1% and TD Securities lowered its estimate to 1.5% from 1.8%.
To cap off the latest news from the US, the Institute for Supply Management’s manufacturing purchasing managers index fell to its lowest level in more than two years in September, though it remained in positive territory.
All these data do not support a rate increase from the Fed in 2015. Central bank officials meet this week to discuss policy but are expected to leave the benchmark interest rate at near zero levels. Interest rates have remained unchanged at this level since December 2008.