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Another decent manufacturing report

The January ISM survey of the manufacturing sector was fully consistent with an economy that is growing by at least 3%. We already knew from the Q4/11 GDP report, but today's report suggests the economy may even be picking up to a 4% pace. Of course, even 4% growth pales in the light of the economy's massive output gap, but at least we are seeing signs of improvement and not the dreaded double-dip recession that the folks from ECRI have been predicting since late last summer. As the chart above suggests, January's 54.1 reading on the manufacturing index tends to coincide with GDP growth of 3-4%.

Export activity appears to have picked up, and this is a very welcome sign given all the concerns that the Eurozone financial crisis has tipped Europe into a recession, and given the hand-wringing about a slowdown in the Chinese economy. A strong global economy provides a nice cushion against any lingering weakness here.

The increase in the prices paid index is the second hint we've received of late that the big slowdown in inflation last quarter has ended—the first being the significant pickup in commodity prices over the past month.

The manufacturing sector is still in hiring mode. All in all, a nice report and reason to be optimistic.

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