US economy slows in September but deflation fears vanishing

The US economy slowed in September, according to the Chicago Fed National Activity Index.

Led by declines in production-related indicators, the Chicago Fed National Activity Index decreased to –0.58 in September from –0.49 in August. Three of the four broad categories of indicators that make up the index slightly improved from August, but only the sales, orders, and inventories category made a positive contribution to the index in September.

The index’s three-month moving average, CFNAI-MA3, ticked down to –0.33 in September from –0.32 in August. September’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. With regard to inflation, the amount of economic slack reflected in the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.

However, US existing home sales rose in September. From Bloomberg:

Sales of U.S. existing homes rose in September by the most on record, a sign cheaper borrowing costs are helping stabilize an industry that’s battling the headwinds of foreclosures and joblessness.

Purchases increased 10 percent to a 4.53 million annual rate from 4.12 million in August, the National Association of Realtors said today in Washington. Economists forecast sales would rise to a 4.3 million pace, according to the median projection in a Bloomberg News survey. The median price fell 2.4 percent from a year earlier.

And investors don't seem worried about deflation in the US over the long term. From Bloomberg:

Expectations for rising consumer prices have increased faster in the U.S. than any other bond market this month as central bankers made the case for monetary easing through additional asset purchases. Yields on 30-year Treasuries climbed as much as half a percentage point since September to 2.61 percentage points more than similar maturity inflation-indexed debt, the widest gap since May and an indication for anticipated gains in consumer prices.

Bloomberg also reports that the yield on 5-year TIPS has even gone negative.

The Treasury sold $10 billion of five-year Treasury Inflation Protected Securities at a negative yield for the first time at a U.S. debt auction as investors bet the Federal Reserve will be successful in halting deflation.

The securities drew a yield of negative 0.55 percent, the same as the average forecast in a Bloomberg News survey of 7 of the Federal Reserve’s 18 primary dealers...

Meanwhile, there was positive news from Europe on Monday. Again from Bloomberg:

European industrial orders increased more than twice as much as economists forecast in August, led by demand for capital goods such as machinery.

Orders in the 16-nation euro area jumped 5.3 percent from July, when they fell 1.8 percent, the European Union’s statistics office in Luxembourg said today. Economists had forecast a gain of 2.2 percent, the median of 14 estimates in a Bloomberg News survey showed. In the year, industrial orders rose 24 percent after rising 12 percent in July.