Implications: Today's reports on manufacturing and construction show absolutely no sign of recession. Not only did the ISM manufacturing index beat consensus expectations, but it climbed to its highest level in three months. The September index reading of 51.6 shows that growth in the manufacturing sector is accelerating, not declining. An index level of 51.6 correlates with 3.2% real GDP growth according to the Institute for Supply Management, which publishes the report. Given recent market volatility and fears of potential defaults in Europe, many regional manufacturing surveys have been beaten down. But like today's ISM report (and Friday's Chicago PMI), we expect these manufacturing surveys to bounce back, as they often reflect sentiment rather than real business activity during times of uncertainty. In other news this morning, construction spending increased 1.4% in August, easily beating consensus expectations of a 0.2% decline. Including revisions to prior months, construction spending was up 1.2%. The largest gain in August came from state and local construction, particularly high schools and bridges. Home building rose due to both single-family construction and home improvements. A gain in commercial construction was led by power plants.
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