Implications: Manufacturing activity expanded at the fastest pace in nearly three years in June, and recorded the second highest reading going back to early 2011.  Moreover, growth continues to remain broad based, with fifteen of eighteen industries reporting growth, while just three reported decline.  A look at the major measures of activity shows expansion continued across the board, with all measures remaining above 50 and picking up pace in June.  The two most forward looking indices - new orders and production – showed the largest gains in June, and continue the trend higher that started after last year's elections.  And through the first half of 2017, the new orders index has averaged the highest readings to start a year since 2004!  With healthy growth in orders, expect production activity to also remain strong in the coming months.  On the jobs front, the employment index rose to 57.2 in June. But it's important to remember that 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 in recent years despite some turbulent times for the manufacturing sector.  Our forecast may change with data still to come before Friday's jobs report, but we are currently forecasting 185,000 jobs added in June (as well as upward revisions to prior months data).  On the inflation front, the prices paid index declined to 55.0 in June from 60.5 in May.  In other words, prices continue to rise, but at a slower pace than in recent months.  Chalk that up to recent weakness in energy prices.  However, rising economic activity and the lagged effect of loose monetary policy continue to put pressure on a wide variety of input prices and place the onus on the Fed not to fall behind the curve in raising rates that are too low for the current environment.  Construction data, also released this morning, included annual benchmark revisions. So while the headline reading from the report shows spending was unchanged in May, revisions to prior months show construction activity occurred at a higher pace than previously estimated.  In May, a pickup in spending on education related construction was offset by declines in home building and manufacturing facilities.

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