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ISM service sector indices a bit on the weak side





This measure of the ISM service sector index that I have been following has dipped in the past two months, and that is somewhat discouraging. But it's hard to read much into the monthly change in any index like this, since it is chronically volatile, rising and falling almost every other month. What I do see is a strong gain in the index over the past 18 months, and the fact that the index is still in positive territory (i.e., above 50). So on balance I think this is modestly positive.


On the other hand, I would note that the employment index has been relatively strong and firm with a slight upward trend over the past several months. Manufacturing employment also looks relatively strong. Both are very positive signs, since they show that businesses are hiring and that is the only way the economy is going to post growth of more than the ±2% that the "new-normal" folks are talking about. Rising employment is also a sign that businesses are willing to invest in the future. As a supply-sider, I think that signs of investment are much more important than whatever we see in the personal income and spending data, which so far have not been very impressive. A dollar invested today in new plant and equipment, new jobs, or a new venture represents a new future stream of dollars and higher living standards on average. Demand doesn't drive the economy, supply (i.e., work, investment and risk-taking) does.

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