The Institute for Supply Management’s national factory index just rose to 55.9, the highest reading on factory activity since April 2006.
It’s good news, but but as Krugman notes, it may just be an inventory bounce:
Such blips are often, in part, statistical illusions. But even more important, they’re usually caused by an “inventory bounce.” When the economy slumps, companies typically find themselves with large stocks of unsold goods. To work off their excess inventories, they slash production; once the excess has been disposed of, they raise production again, which shows up as a burst of growth in G.D.P. Unfortunately, growth caused by an inventory bounce is a one-shot affair unless underlying sources of demand, such as consumer spending and long-term investment, pick up.
That being said, we are seeing increased demands for capital from small businesses, with a 37% year over year increase in the Small Business Administration’s 7(a) lending program, a total of $3.8 billion.
On the down side, construction spending fell for the 7th, falling 0.6%, and it has been reported that US bankruptcies are up 32% in 2008.
On the other side of the pond, new orders to factories slowed in the Euro zone.
In energy, low temperatures and a Russia-Belarus price dispute drove Oil above $80/bbl.
In currency, the US dollar fells on the good ISM factory report, as risk appetite improved.