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ISM manufacturing index very strong

The Institute for Supply Management's April index of manufacturing activity was a bit stronger than expected, but more importantly, it is telling us that the 3.2% growth rate of first quarter GDP was most likely depressed by bad weather. For the past four months, the ISM manufacturing index has been pointing to GDP growth of 5-6%. Thus, we could see a very strong rebound in second quarter GDP growth. That would be consistent with all the other V signs out there, such as commodity prices and export orders, with the latter shown in the next chart:

Furthermore, the employment index in April jumped to 58.5, its highest level since early 2005. And in yet another reminder that deflation risk is no longer a concern, the ISM prices paid index rose to 78, a level it has rarely exceeded in the past. There is a whole lot more life in the economy than what was reflected in last week's Q1 GDP release, and there are budding signs of reflation as well.

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