Implications: Great reports again today on manufacturing and construction. The ISM manufacturing index was lower than expected, but the consensus was gathered before the ISM released annual revisions that lowered the overall level of the index. The consensus was expecting an increase of 0.6 points; instead there was an increase of 1.0 points. So the change was larger than expected. In other words, the manufacturing sector improved in January and just in case you still think a double-dip is possible, the new orders index came in at a very strong 57.6 in January suggesting more growth in manufacturing ahead. The employment index ticked down slightly to 54.3 but remains solidly above 50. This confirms other positive news on employment. The one sub-index that remains weak is inventories. The reluctance of manufacturers to accumulate inventories may hold back GDP in the short term, but we view this reluctance as temporary and indicative of better future growth. On the inflation front, the prices paid index rose to 55.5 in January. Monetary policy is very loose and, in effect, getting looser as the economy accelerates. In other news this morning, the ADP Employment index, a measure of private sector payrolls, increased 170,000 in January, close to consensus expectations. We anticipate the official Labor Department report (released Friday morning) will show a private sector gain of 155,000. Construction increased 1.5% in December (1.1% including slight downward revisions for home building in prior months). The gain in December was led by manufacturing facilities and power plants. Both commercial construction and home building are trending upward, with commercial building up 11.4% versus a year ago and housing up 4.9%.
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