Good manufacturing report

So good I'm suspicious of it. PMI at 58.6%, and rising manufacturing activity for the 19th straight month:

A PMI in excess of 42.8 percent, over a period of time, generally indicates an expansion of the overall economy. The December PMI indicates that both the overall economy and the manufacturing sector are growing. The past relationship between the PMI and the overall economy indicates that the average PMI for January through December (60.5 percent) corresponds to a 6.5 percent increase in real gross domestic product (GDP). The last time the PMI averaged over 60 percent for one full calendar year was in 1973, when it averaged 65.9 percent. In addition, if the PMI for December (58.6 percent) is annualized, this corresponds to a 5.8 percent increase in GDP.

Some of this has to be due to war contracts. New orders at 67.4%? That's really surprising. Forgive me if I stagger off to contemplate this in baffled thought.

Update: This article in FI attributes some of the rise to the falling dollar, but also notes that manufacturers may have been racing to beat a tax deadline for capital equipment:

Export orders were particularly strong, with the index rising from 54.7 to 60. Analysts said there were signs that the weaker dollar was providing a boost to exports. Nearly 40 per cent of respondents said that domestic orders grew faster in December, with just 16 per cent reporting slower growth.

The new orders component of the index jumped 5.9 per cent.

Ian Shepherdson, chief US economist at High Frequency Economics, said that companies might have brought forward purchases of capital equipment to take advantage of bonus depreciation allowances, part of the economic stimulus package of the Bush administrations first term that expired at the end of 2004.

Still, some of the sectors listed as having big increases have nothing to do with capital equipment, like leather and furniture. January's figures should be very interesting.