Implications: After two mistaken reports earlier today, the Institute for Supply Management says its manufacturing index, a measure of factory sentiment around the country, came in at 55.4. This was an increase versus April and almost exactly what the consensus expected. Since the steep weather-related drop in January, the index is up four months in a row. The report for May shows growth in seventeen of the eighteen manufacturing industries (textile mills were the only exception). While not quite back to the levels seen at the end of 2013, the index has stood in expansion territory for twelve consecutive months, and we expect the index to show continued strength as companies ramp up production and continue to make up for time lost to bad weather. According to the Institute for Supply Management, an overall index level of 55.4 is consistent with real GDP growth of 4.1% annually, consistent with what we think will be a sharp rebound in growth in Q2 after the temporary slump in Q1. On the inflation front, the prices paid index rose to 60.0 in May from 56.5 in April. Along with broader measures of consumer and producer prices, inflation is starting to show signs of the loose monetary policy of the past several years. In other news this morning, construction increased 0.2% in April (1.2% including revisions to prior months), reaching the highest level since March 2009. The gain in April itself was led by construction at public colleges. New housing (single-family and multi-family units combined) was up 1.6% in April and is up 17% in the past year. After the harsh winter weather, construction spending has now shown growth for three consecutive months as projects delayed by the cold have gotten underway.

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