Implications: This morning's two reports explain the economy in a nutshell: manufacturing is booming while construction remains soft. With the exception of one month in 2004, the ISM index is now the highest since 1983, when the economy was in the early stages of the huge 1980s recovery. The sub-indices of today's report continue to show robust growth, with many reaching multi-year highs. In particular, the employment index increased to 64.5, the highest level since 1973, suggesting Friday's manufacturing payroll number will be strong again. The only bad news in today's report was on inflation, where the prices paid index rose to 82.0 from an already elevated 81.5 in January. The index is quickly approaching levels seen during the summer of 2008, when oil prices were spiking. The Fed's loose monetary policy continues to become more and more inappropriate as the recovery continues. In other news this morning, construction declined 0.7% in January, which is actually impressive given unusually bad weather conditions for much of the country. Including upward revisions for prior months, construction increased 0.5%. The decline in January itself was due to commercial construction, primarily electric power plants and health care-related buildings (such as hospitals). Residential construction increased sharply due to home improvements.
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