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Manufacturing activity continues strong

The August ISM manufacturing index came in quite a bit stronger than expected, refuting some recent and scattered signs of a slowdown in activity. Indeed, this index (above) strongly suggests that the relatively tepid GDP growth in Q2 was an anomaly, and that we should see stronger growth in the second half of the year.

The export orders index slipped marginally, but remains comfortably above 50, suggesting ongoing expansion in that sector of the economy.

The prices paid index moved a bit higher, reflecting, as it has for quite some time, a gradual buildup of inflation pressure that is undoubtedly being driven by rising commodity prices. It also continues to signal that deflation is nowhere to be seen.

The strongest part of the report was the employment index, which has reached a level that was last seen at the end of 1983, when the economy was embarked on the Reagan boom. This also counters the relatively weak ADP employment number released today.

The bears will have to go through contortions to explain away the across-the-board good news from this report.

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