Several data points today were indicative of both continued expansion (good news) and higher inflation (bad news).
Chicago NAPM Purchasing Managers Index (PMI, see report here) popped above 60 in March after printing slightly bearish numbers in January and February (50 is considered neutral). Interesting comments were appended to some of the index components: "largest leap since August 1996" in production; "largest increase in the history of the series" for new orders; jump in order backlogs was the "highest since April 1999"; prices paid fell, which is a positive sign for inflation. On the bearish side, the employment outlook declined for the fourth month out of the last five, and stands at a seasonally adjusted 45.
The Fed’s favored inflation indicator, Core PCE, came in at 0.3% for February, above expectations, and still outside of the Fed’s stated comfort range of 2% annual inflation. That’s bad news for those expecting the Fed to cut its target rate in 2007. Personal income and spending both exceeded forecasts, which is positive, but again doesn’t support the case for Fed easing.
Things remained fairly orderly in the Treasury market, though the retreat from end of February highs continues.