Construction begins to recover

As these charts show, the construction industry has suffered a devastating decline since peaking in late 2005. After six years of contraction, the sector has shrunk by two-thirds relative to the size of the economy. But now it looks like the worst is over, and a slow and gradual recovery is beginning. It will likely be many years before the industry fully recovers, but along the way we could see some pretty spectacular growth rates. I expect it will be slow progress this year, but picking up lots of speed by next year.

ADP report points to decent jobs growth

The ADP estimate of January private sector job gains dipped from its relatively strong December level, but is fully consistent with the 163K jobs number this Friday that the market is expecting. No sign here of any meaningful deterioration. As with the manufacturing report today, this is one more reason to expect 3-4% growth, and one more reason to not worry about a double-dip recession.

Another decent manufacturing report

The January ISM survey of the manufacturing sector was fully consistent with an economy that is growing by at least 3%. We already knew from the Q4/11 GDP report, but today's report suggests the economy may even be picking up to a 4% pace. Of course, even 4% growth pales in the light of the economy's massive output gap, but at least we are seeing signs of improvement and not the dreaded double-dip recession that the folks from ECRI have been predicting since late last summer. As the chart above suggests, January's 54.1 reading on the manufacturing index tends to coincide with GDP growth of 3-4%.

Export activity appears to have picked up, and this is a very welcome sign given all the concerns that the Eurozone financial crisis has tipped Europe into a recession, and given the hand-wringing about a slowdown in the Chinese economy. A strong global economy provides a nice cushion against any lingering weakness here.

The increase in the prices paid index is the second hint we've received of late that the big slowdown in inflation last quarter has ended—the first being the significant pickup in commodity prices over the past month.

The manufacturing sector is still in hiring mode. All in all, a nice report and reason to be optimistic.