• Due largely to a surge in orders and employment, the ISM index rose to 57.1 in July, signaling the fastest pace of expansion in the factory sector thus far in 2014. But as activity is picking up, so are prices.

Foot Still on the Gas Coming around the Turn

Following a better-than-expected second quarter GDP report earlier this week, the ISM manufacturing survey tells us that the U.S. business sector started the third quarter on good footing with activity picking up

The orders component surged 4.5 points to 63.4—just spitting distance from the 66.6 cycle high— which was reached in August 2009, when the factory sector led the U.S. economy out of recession. Given the lack of conviction in business spending earlier this year, this is a welcome development. That could signal a bigger contribution from equipment outlays than the more modest growth environment we have been expecting. Today’s jobs report may have fallen short of expectations, but the labor market outlook also gets a jolt from the ISM report with a 5.4 point jump in the employment component which lifts this measure to 58.2. That is the fastest pace of job growth in more than three years.

Inventories have been the swing factor in the past two GDP reports as stockpiling seems out-of-sync with other parts of the economy. Other ISM components are at multi-year highs while both the inventory component and the customer inventory measure in the ISM report are below 50.

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