Monday, October 5, 2009

ISM service sector strong

The September ISM report on the service sector was strong, and as the chart shows, is consistent with a V-shaped recovery in what is by far the largest sector of the economy. I would note that the last time we saw a huge rise in the index, in 2003, the economy staged an impressive recovery, growing at a 4.6% rate from April through December '03. I continue to expect to see 3-4% rates of growth in coming quarters. This recovery probably won't be as strong as the recovery of '03, mainly because of the headwinds created by a big increase in government spending. The '03 recovery was also boosted by cuts in marginal tax rates, something that is unfortunately missing this time around.

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