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We could see positive growth for while without much improvement in final demand, supported longer term by government, exports, and investment.

Equity markets strong, better than expected earnings, with real estate to follow with a lag, and high unemployment keeping real wages/business costs down.

Real wealth continues to flow from the bottom to the top.

Risks include rising marginal tax rates next year and other possible demand drains from one time fiscal adjustments running their course. But that’s too far ahead for markets to discount.

Karim writes:

Details strong; anecdotes weak. Suggests an inventory restocking, but little to no improvement in final demand.

Consistent with Fed baseline of H2 restocking to lead to positive Q3 and Q4 growth but concern over next catalyst going into 2010.

Strength in orders vs inventories could well see headline rise above 50 next month.

July June
Index 48.9 44.8
Prices paid 55.0 50.0
Production 57.9 52.5
New Orders 55.3 49.2
Inventories 33.5 30.8
Employment 45.6 40.7
Export Orders 50.5 49.5
Imports 50.0 46.0

* “[There is concern about] overall health of strategic suppliers — continue to see new suppliers filing Chapter 7 or 11, posing significant risk to supply chain.” (Machinery)

* “We believe our inventories are now at the bottom of this cycle, driving stronger demand for raw materials.” (Paper Products)

* “While our aftermarket business has improved slightly, we are still awaiting an increase in OEM demand.” (Transportation Equipment)

* “No stimulus for manufacturing.” (Fabricated Metal Products)

* “Looking at another round of shutdowns to align supply with projected demands.” (Nonmetallic Mineral Products)