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A decent manufacturing report

The December ISM manufacturing report was yet another in a string of recent reports that shows the U.S. economy is slowly improving rather than sliding into another recession. The weakness that surfaced last summer has been at least partially reversed. As the top chart suggests, the current level of the ISM index is consistent with real GDP growth in the fourth quarter of at least 3%, and possibly as high as 4% (I think 3-3.5% is likely).

Even export orders picked up, which is good since this suggests that Europe's financial woes have not seriously affected the health of the global economy.

The ISM report was far from being robust, but it definitely refutes the notion that the U.S. and global economies are struggling. In the context of a market that is still priced to something like a global recession or even depression (i.e., 2-yr Treasury yields of .25% and 10-yr Treasury yields of 2.0%), this is very good news.

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