Karim writes:
Across the board strength. More evidence that the inventory drag in Q4 was involuntary (demand running well ahead of production). While some of these figures may cool, the order backlog and supplier delivery indices (lead times) suggest very strong data for the next few quarters.
- Overall index: Highest since May 2004
- New orders: Highest since Dec 2003
- Employment index highest since April 1973
- Export orders: Highest since Dec 1988
| ISM | Jan | Dec |
| Index | 60.8 | 58.5 |
| Prices paid | 81.5 | 72.5 |
| Production | 63.5 | 63.0 |
| New Orders | 67.8 | 62.0 |
| Backlog of orders | 58.0 | 47.0 |
| Supplier deliveries | 58.6 | 56.7 |
| Inventories | 52.4 | 51.8 |
| Customer inventories | 45.5 | 40.0 |
| Employment | 61.7 | 58.9 |
| Export Orders | 62.0 | 54.5 |
| Imports | 55.0 | 50.5 |
Yes, manufacturing is being led by exports, which tells me to watch for a dollar rally.
The problem is crude is moving higher, but that may be temporary and fall back as the Egyptian crisis gets resolved, if the Saudis don’t support the higher prices. And the US cost advantage with the dollar at current levels could drive the dollar higher even with the higher crude prices.
The federal budget deficit remains plenty high to support the 3-5% reported real growth, which is enough to bring unemployment down some as well with productivity running maybe 2.5% or so, but unemployment probably won’t fall fast enough for the Fed to declare victory anytime soon. And with core inflation numbers still decelerating the Fed continues to see itself ‘failing’ on both mandates as Chairman Bernanke reported in his last address.
For the Fed, the GDP growth limit is as high as possible without jeopardizing price stability. While they have calculated that should be around the 3-4% real growth level, if the evidence supports higher rates of gdp growth with price stability they should in theory have no problem with higher levels of real growth.
Risks remain China, Europe, and US fiscal tightening, as well as a sharp spike in crude prices