Implications: Today's report on the service sector signaled a rebound in economic growth and an upward move in inflation. Since hitting a four-year low in February, the ISM service sector has jumped to 55.2, signaling the fastest growth in eight months and showing expansion for a 51st consecutive month. Paired with the strong ISM manufacturing report from Friday, it looks like production is bouncing back from the harsher than normal winter. The business activity index– which has a stronger correlation with economic growth than the overall index – surged 7.5 points in April, the largest single-month gain since the economic recovery began. New orders also showed strong gains in April, rising to an eight month high. The most disappointing part of the report was that the employment index declined to 51.3 in April from 53.6. However, broader measures of jobs, like last week's employment report signal a better labor market. We expect this measure to move higher in the coming months as companies hire more in response to better economic growth (which the business activity index is showing). On the inflation front, the prices paid index jumped to 60.8 in April from 58.3 in March. Still no sign of runaway inflation, but given loose monetary policy, we expect this measure to either stay elevated or even move upward over the coming year. Once again, we have a report showing the Plow Horse economy may be starting to trot.
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