Implications: The manufacturing sector is absolutely booming. Today's ISM report blew away the consensus (which expected a decline), increasing to 60.8. This is the highest level since May 2004, more than six years ago. The sub-indicies of the report show robust growth in manufacturing, and many of them reached multi-year highs as well. The new orders index rose to 67.8, also the highest level since 2004, and the production index rose to 63.5. The employment index rose to 61.7, the highest level for the index since 1972, suggesting that Friday's manufacturing payroll number might surprise to the upside. The only bad news in today's report was on the inflation front, where the prices paid index rose to 81.5 from an already elevated 72.5 in December. The index is quickly approaching levels seen during the summer of 2008, when energy prices spiked. The Fed's loose monetary policy continues to become more and more inappropriate as the recovery continues. In other news this morning, construction declined 2.5% in December versus a consensus expected gain of 0.1%. Including slight downward revisions to prior months, construction was down 2.8%. The decline in December was led by home building (primarily home improvements) and government construction (primarily schools, roads, and federal office buildings).
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