US Survey Results: Sentiment Improves, but...

The Dallas Fed factory index rose to -3.3 in October from -6.4 in Sept. The index bottomed in Feb at -565 and has risen steadily since. The best news came from the six-month ahead activity index which rose to 16.7 from 13.9. Most of the other components though suggest moderating activity. Output, new orders, shipments, employment and unfilled orders all slipped from Sept readings. Prices paid increased, but prices received fell further, which warns of pressure on profit margins.

Elsewhere the latest survey of the National Association of Business Economists also found improved sentiment. The number of member firms reporting increased demand vs weaker demand improved to 23 in Q3. It is the first rise in five quarters. Looking out six months, more firms expected less firings and 12% expected to add jobs (vs 6% in July). More firms are also expected to hike capital investment than cut it, the first positive reading in a year.

The major US economic report of the week is the first (advance) read on Q3 GDP. The consensus is for a little more than 3%. The net positive contributors appear to be less of a drawn down in inventories, a gain in residential investment, and somewhat stronger personal consumption (helped by transfer payments and the "cash for clunker" scheme.

The greater economic activity was probably accompanied by a lower inflating measured by the core PCE deflator. Positive growth is unlikely to prove sufficient to prompt a change in the Fed's stance, which is expected to reiterated at the conclusion of next week's FOMC meeting that economic conditions warrant exceptionally low Fed funds for an extended period of time.