Honey, Who Shrunk My Bull Market?

The news is out. The recovery is for real.

This morning, the Institute for Supply Management ("ISM," also short for "Institute for Stocks Movement") released its latest monthly report on how the American economy is doing. Short version: We're doing great:

For the third month in a row, manufacturing activity is up in America. ISM's latest PMI index report now reads "61.4%." For one thing, that means industry is doing better than it's done at any time in the past 18 months or so. It means 14 out of 18 manufacturing industries are in growth mode. The top three, in ascending order, are:

  • "transportation equipment" (which is bullish for Boeing (NYSE: BA  ) , and makes Warren Buffett look awfully smart to have been adding railroads to Berkshire Hathaway's (NYSE: BRK-A  ) (NYSE: BRK-B  ) toybox) ...
  • "petroleum & coal," and ... (drumroll please)
  • "apparel & leather" (Who'dathunkit?)

According to ISM: "New orders and production, driven by strength in exports in particular, continue to drive the composite index ... New orders are growing significantly faster than inventories, and the Customers' Inventories Index indicates that supply chain inventories will require continuing replenishment." So it's a virtuous cycle. Growth all around.

What's wrong with that?
The following excerpts from ISM's report echo what I pointed out last month:

  • "Prices continue to rise."
  • "The Prices Index indicates significant inflation of raw material costs across many commodities."
  • "A continued weak dollar is increasing the cost of components purchased overseas. It is going to force us to increase our selling prices to our customers."
  • "We continue to see significant inflation across nearly every type of chemical raw material we purchase ... No commodities are reported down in price."

Foolish takeaway
In a nutshell, the recovery is real -- but inflation is real, too. Is your portfolio prepared to deal with inflation shock? If you're not sure, read this article, and learn how to get ready.

Fool contributor Rich Smith does not own shares of any company named above. Rich is not a licensed economist, but he plays one on the Web. Check out his latest stock recommendations on Motley Fool CAPS. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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