Monday, July 6, 2009
The Institute for Supply Management's service-sector releases for June showed substantial improvement, as seen in these charts. Both the general indicator as well as the prices paid index have risen to levels that are consistent with the end of a recession. This news contrasts quite a bit from the gloom that continues to pervade the equity and bond markets, where investors were spooked by the weaker-than-expected payroll numbers for June. On balance, however, I think the news of the past few months has been quite positive and generally consistent with an economy that is on the mend.
The second chart is also interesting for what it doesn't show: there is no longer any evidence of a generalized price decline or what might be the seeds of a dreaded deflation. The prices paid indices are now at 50, which means that just as many survey participants are paying higher prices as there are paying lower prices. Despite the fact that the economy is still operating at a level that is significantly below its presumed potential, prices in general are not falling as the Fed's theory of inflation would predict. That means that the Fed is not starving the economy for money, and that is a good thing.
Posted by Scott Grannis at 8:14 AM