US economic growth continued to weaken in October, according to this morning’s update of the Chicago Fed National Activity Index’s three-month moving average (CFNAI-MA3). Last month’s reading slipped to -0.20, the lowest since Mar. 2015. But even after the latest decline, this benchmark of economic activity remains well above its -0.70 tipping point that marks the start of recessions, according to Chicago Fed guidelines. Meantime, there are signs that the trend will firm in the final months of the year. One clue is the Atlanta Fed’s current GDPNow estimate of fourth-quarter GDP growth: 2.3% (as of Nov. 18), which reflects a moderate improvement over Q3’s sluggish 1.5% increase.
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The US economy is on track for a modest rebound in the fourth quarter, according to GDP projections from several sources. Although it’s still early for developing robust estimates for Q4, most economists are looking for improvement over Q3’s tepid 1.5% rise in GDP (seasonally adjusted annual rate).
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Emerging-markets equities enjoyed a solid rise last week among the major asset classes, based on a set of proxy ETFs. Vanguard Emerging Markets Stock (VWO) posted a solid 4.5% total return for the five days of trading through Nov. 20, edging out the number-two performer for the week, US real estate investment trusts (REITS), based on Vanguard REIT (VNQ).
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● Eurozone Composite PMI rise to 4-1/2 year high in Nov | Markit
● Germany Composite PMI ticks up to 3-mo high in Nov | Markit
● France Composite PMI slips to 3-mo low in Nov | Markit
● Kansas City mfg index in Nov: first positive reading since Feb | KC Star
● Eurozone consumer confidence index rises in November | Reuters

● Income Inequality: Why It Matters and Why Most Economists Didn’t Notice
By Matthew P. Drennan
Summary via publisher (Yale University Press)
Prevailing economic theory attributes the 2008 crash and the Great Recession that followed to low interest rates, relaxed borrowing standards, and the housing price bubble. After careful analyses of statistical evidence, however, Matthew Drennan discovered that income inequality was the decisive factor behind the crisis. Pressured to keep up consumption in the face of flat or declining incomes, Americans leveraged their home equity to take on excessive debt. The collapse of the housing market left this debt unsupported, causing a domino effect throughout the economy. Drennan also found startling similarities in consumer behavior in the years leading to both the Great Depression and the Great Recession.
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The three-month average of the Chicago Fed National Activity Index (CFNAI) is expected to decline in the October update that’s scheduled for Monday (Nov. 23), based on The Capital Spectator’s average point forecast for several econometric estimates. The projection for -0.21 reflects a modest decline from -0.09 in September, which indicates US economic activity that’s slightly below the historical trend rate of growth. Only negative values below -0.70 signal an “increasing likelihood” that a recession has started, according to guidelines from the Chicago Fed. Using today’s estimate for October as a guide, CFNAI’s three-month average is expected to reflect an expansion that’s moderately below the historical trend but still above the tipping point that marks the start of a new US recession.
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Yesterday’s November survey data from the Philadelphia Fed hints at the possibility that a stronger trend is emerging for the manufacturing sector. The headline number for this regional benchmark posted its first positive reading in three months.
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● US leading indicator rises more than expected in Oct | RTT
● US jobless claims fell for week through Nov 14 | NY Times
● US Consumer Comfort Index sticks close to 13-mo low | Bloomberg
● Philly Fed manufacturing index rises in Nov after 2 monthly declines | RTT
● ECB minutes suggest more stimulus in December | WSJ
● UK retail sales fall in Oct after strong Sep | BBC

Confidence in the US economy has wobbled over the last several months, in part due to mixed updates for several key indicators. But drawing conclusions about the broad trend by cherry picking data points is a dangerous game if you’re looking for reliable estimates of recession risk. Recent history reaffirms this message quite clearly. Despite the rush in some corners this autumn to declare that a new downturn is fate, a diversified set of economic and financial indicators has yet to confirm such claims.
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● FOMC minutes focus on Dec rate hike | Fox
● US housing starts fall to 7-mo low as permits rise | Reuters
● More Eurozone stimulus? Oil may be the key | Bloomberg
● Bank of Japan leaves policy unchanged despite new recession | RTT
● UK retail sales growth slows more than expected in Oct | Bloomberg