US durable goods orders put a big exclamation mark on the run of weak data seen of late

US durable goods orders put a big exclamation mark on the run of weak data seen of late. Headline, ex-transport and core (non-defense, ex-air) orders all fell for a second month in a row. Most discouraging was the two-tick drop in core orders, which consensus had instead expected to rise by three. Adding salt to the wounds, last month's drop in this category was revised to a much deeper 1.6% (MoM, sa) from an initial estimate of 0.2%. Core capex orders are now down 7.3% from one year ago and are no higher than they were 3.5 years ago. 

Add the durable goods report to the sharp drop in nonfarm payrolls over the past two months, the sharp drop in exports since February, industrial production and retail sales growth that fell to 0.4% YoY and 2.9% in September and the Fed will have some explaining to do when they meet Thursday. Yellen and Fischer (and 3 considerably more hawkish officials) have said as recently as late-September (Yellen) and mid-October (Fischer) that lift-off this year is likely, subject to cooperative data. It's going to be awfully difficult for the Fed to ignore the deterioration in the data in Thursday's statement. Which means if the Fed wants to keep December in play, it will have to acknowledge that policy is calendar-based after all and not data-based as it claims. 

"We think it will have little choice but to acknowledge the weak data and that Fed fund futures, which have already lowered the odds of December lift-off to below one-third, will drop them to about 10% by week's end", notes DBS Group Research.