Implications: The US economy continues to pick up steam and we are now seeing strong economic growth in both the manufacturing and service sectors. Today's ISM Services report delivered a broad array of data that continued to trace out a V-shaped (possibly a check-mark-shaped) recovery. The overall services index was at 59.4, the highest since 2005. The business activity index, which has an even higher correlation with real GDP growth, hit 64.6, also the highest since 2005. The new orders index was the highest since 2004 and the employment index increased to 54.5, the highest level since 2006. The employment index has been above the key 50 level for five straight months. On the inflation front, the prices paid index increased to 72.1, the highest since the financial panic started in late 2008. The Federal Reserve's ultra-easy monetary policy is getting increasingly inappropriate. In other recent news, cars and light trucks were sold at a 12.6 million annual rate in January, up 0.6% versus December and up 17.4% versus a year ago. Over the next couple of years, these sales will continue to increase to about a 15-16 million annual rate, the pace that offsets the annual scrappage of autos as well as changes in the driving-age population. The service sector is getting stronger, firms are hiring again, and workers are confident enough about the future to ramp up their purchases of big-ticket items.
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Posted on Thursday, February 3, 2011 @ 11:01 AM
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