Implications: The ISM manufacturing survey hit a two-and-a-half year high in February, and is off to the best start to a year since 2011.  Factories continue to ramp up activity, with the production index rising to 62.9 in February as seventeen of eighteen industries reported growth.  Add in continued growth in the pace of new orders and production should continue to show healthy growth in the months ahead. Plus, President Trump has promised tax cuts and regulatory reforms, likely boosting confidence across industries.  The employment index was the only major index to decline in February, but remember that levels about 50 signal growth, so the February reading of 54.2 represents continued expansion but at a slower pace than in January.  That said, manufacturing remains a small portion of total employment.  For a better picture of labor market health, we tend to focus on broader signals (initial claims, earnings growth, and consumer spending) which have shown constant strength even through some turbulent times for the manufacturing sector.  On the inflation front, the prices paid index was nearly unchanged at 68.0 in February from 69.0 in January, with more than twenty commodities rising in price while just one, scrap metal, reported lower.  So any suggestion that rising prices are just a reflection of the rebound in oil prices misses the mark.  Rising economic activity, the lagged effect of loose monetary policy, is putting pressure on a wide variety of inputs, and putting pressure on the Fed not to fall behind the curve in raising rates that are too low for the current environment.  In other economic news this morning, construction spending declined 1.0% in January (-0.1% including revisions to prior months), as a decline in state and local construction of airport terminals and bridges more than offset a pickup in home building.

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