Monday, March 5, 2012

Service sector continues to grow

The February ISM Service Sector survey reflected decent growth across the board. Nothing in these charts even hints at weakness.

As a counterweight to the relatively weak showing for January capital goods orders, I offer this chart of January factory orders ex-defense, a much larger category. Orders were down 1% in January from December, but up a solid 8.6% over the previous 12 months, and up at a 5.7% annualized pace over the previous six months.

As we see more and more signs of continued growth (albeit growth that is less than we would normally expect to see given the depths of the recent recession), the burden of proof increasingly is shifting to the shoulders of the bears, especially those who are predicting an imminent recession or a substantial setback in the economy's ongoing expansion. Just because the economy is not as strong as it "should" be at this point in the business cycle is not reason to believe that it is at risk of rolling over into another recession. Moreover, Fed governors should be feeling increasingly uneasy with numbers of this sort, since they are not weak enough to warrant an ultra-expansionary monetary policy that promises to be in place for years to come.

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