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ISM manufacturing report very strong

The January ISM manufacturing survey indices came in much stronger than expected. This is  almost what one could call a blowout report, since it leaves no doubt that conditions in the manufacturing sector are improving significantly. As the top chart suggests, the overall index is consistent with GDP growth of at least 4-5%, which is what I'm expecting to see as the year unfolds.

The employment index hasn't been this strong since early 1973.

The export orders index has been volatile in the past year, but January was very strong and there is no indication of any deterioration. The New Orders index was also very strong, rising back to levels not seen since the economy surged in the second half of 2003. The Prices Paid Index was also strong, as 81.5% of the respondents reported paying higher prices. This very strongly suggests that deflation is a thing of the past, and it should be ringing alarm bells at the Fed. Nothing about this report fits the Fed's narrative of an economy that desperately needs massive monetary stimulus with no need to worry about any inflationary consequences.

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