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The November ISM service sector activity index fell unexpectedly, but my reading of the top chart is that it normally moves in a sawtooth fashion, so this is more noise than it is signal. The same thing, only in reverse, occurred with the service sector prices paid index, which jumped in November. The thrust of both series is unchanged: conditions are improving, and pricing power has returned. The return of pricing power is a stark reminder that deflationary forces are not only in retreat but never had a chance to gain a foothold. Unfortunately, the Fed is still fighting the deflation battle when it could be propping up the dollar instead. Yes, things are far from perfect, but they are nevertheless much better on the margin.

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