Manufacturing continues strong

The Institute for Supply Management's survey of manufacturing companies continues to show relatively robust strength. The current level of the index strongly suggests that GDP growth will continue to improve this year from last year's 3% level.

Upward price pressures continue, unfortunately. This is fully consistent with the CEO of Walmart's warning yesterday that consumers could see some significant inflation at the retail level this year as higher commodity and input prices are passed along.

Employment conditions remain very healthy. Overall, today's ISM report was strong. There's a lot of underlying strength in the economy that is underappreciated by those who continue to focus on all the things that are still wrong with the economy (e.g., the still-high level of unemployment, the ongoing weakness in housing, the dreadful state of the federal budget and unfunded liabilities, the rather tepid recovery to date, and the rise in oil prices). In my view, what's wrong is well known and it's very old news; it's priced into the market and it's impact has been mostly absorbed by market prices. What's more important is the change on the margin (e.g., improving manufacturing conditions, a pickup in the pace of hiring, a new mood in Congress that will almost certainly result in slower spending growth and at least some positive tax reform), and that is very positive.