● US Q2 GDP growth revised up to 3.9% from 3.7% | BEA
● US Services PMI growth ticks lower in Sep: 55.6 vs. 56.1 in Aug | Markit
● US consumer sentiment slips in September | Reuters
● Solid gain for business & consumer confidence in Italy in Sep | RTT
● US dollar firms on expectations of Fed rate hike | Reuters
● IMF head says global growth outlook will likely be revised down | Reuters

US economic growth has downshifted lately, but only moderately so, according to this morning’s flash estimate of the Services PMI data for September. Markit’s sentiment benchmark for the sector, which represents the dominant slice of US economic activity and payrolls, dipped to 55.6 in this month’s initial reading from 56.1 in August. But that’s still a solid pace and is well above the neutral 50.0 mark that separates growth from contraction. In short, the Services PMI suggests that the US macro trend is still positive.
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Avoiding a hefty drawdown is a high priority for every investment strategy, but monitoring the history of decline from previous peaks is a valuable indicator for deciding if a given market has crossed the Rubicon into bear-market territory. Minds will differ at the moment on the subject of US equities, in part because the S&P 500’s one-year loss is a relatively mild 3.3% slide as of Sep. 24. But drawdown data is painting a darker profile for the US stock market.
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● US durable goods orders slump 2% in August–first drop in 3 mos. | MarketWatch
● US jobless claims up 3k last week to still-low 367k | Bloomberg
● Chicago Fed Index: US growth at slightly above-trend pace in Aug | Chicago Fed
● US new home sales rise 5.7% in Aug to post-recession high | WSJ
● US Consumer Comfort Index rises the most in 3 months | Bloomberg
● US KC Fed Mfg Index posts slower rate of decline in Aug | 24/7 Wall St
● Eurozone lending up, M3 money supply pace falls in Aug | Reuters

Market turbulence? Check. Heightened concerns about economic growth—globally and for the US? Check. Does this mean that the Fed won’t raise interest rates this year? Not necessarily. Or so Fed Chair Janet Yellen intimated in a speech today. A slowdown in China’s growth rate and a mixed bag of numbers for the US lead some (many?) economists to conclude that it’s not a good time to start squeezing monetary policy. But Yellen has a different view. Sure, she may have surprised the crowd with the no-hike decision at last week’s FOMC meeting–a decision that was widely interpreted as the Fed’s way of saying that the future looked a bit dicey. But don’t confuse last week’s Yellen with today’s Janet.
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US economic activity in August increased at a pace that’s fractionally above the historical trend, according to this morning’s update of the Chicago Fed National Activity Index’s three-month average (CFNAI-MA3). Last month’s reading of +0.01 ticked down from July’s revised +0.02 level, but both numbers reflect an upbeat macro trend.
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Making the case for optimism isn’t getting any easier. Although the broad US macro trend is still positive, Mr. Market has lost his mojo. In fact, one econometric technique for gauging the state of the US equity market advises that a bear market has recently started. It could be a false warning, of course, but for the moment it’s clear that market risk has popped up. The main reason for reserving judgment: US economic growth is still positive. There are cracks, but a tailwind is still blowing. The caveat is that economic numbers arrive with a lag. Does the market know something that’s not yet reflected in the hard macro data? Maybe, although Mr. Market’s track record on forecasting the business cycle isn’t flawless.
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● US Mfg PMI unchanged at 53.0 in Sep, slowest growth in 22 mos | Markit
● US mortgage apps surge 13.9% in week through Sep 19 | CNBC
● VW scandal poses risks for German economy | Reuters
● Japan Mfg PMI ticks lower, close to neutral rate: 50.9 | Markit
● German business confidence (Ifo) improves in Sep | RTT
● Consumer confidence (Gfk) in Germany eases | Reuters

The three-month average of the Chicago Fed National Activity Index (CFNAI) is expected to rise modestly in the August update that’s scheduled for tomorrow (Sep. 24), based on The Capital Spectator’s average point forecast for several econometric estimates. The projection for +0.08 is slightly above July’s zero reading, which reflects economic growth that matches the historical trend. 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 August as a guide, CFNAI’s three-month average is expected to reflect an expansion that’s slightly above the historical trend rate for growth and therefore well above the tipping point that marks the start of a new recession.
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US manufacturing activity is surprisingly firm in September, according to the initial estimate of Markit’s purchasing managers’ index (PMI) for this corner of the economy. I say “surprisingly firm” because three previously released regional indexes for manufacturing in September (via Fed banks) are unusually weak, as I discussed yesterday. But the national trend for manufacturing looks comparatively resilient. Growth is still moderate, bordering on sluggish for manufacturers. But if you’re looking for a dark signal for the US business cycle, today’s PMI update doesn’t offer much red meat.
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