KEY DATA:  ISM (Manufacturing): +3.2 points; Orders: +2.8 points; Employment: +3.1 points

IN A NUTSHELL: “Manufacturing continues to recover and that should help cushion any slowdown in the economy-leading housing sector.”

WHAT IT MEANS:  The breakneck pace in housing construction and sales is starting to moderate and we need the recovery to be driven by more than one sector.  Manufacturing may be filling that need.  The Institute for Supply Management reported that manufacturing activity accelerated in December.  The overall index reached its highest level in nearly 2.5 years, with most components increasing solidly.  Orders were strong, though both import and export demand did expand less rapidly.  The rising demand led to a surge in production and hiring.  Despite factories running full out, order books are still filling, so look for production and payrolls to rise in the months to come.  About the only concern in the report was a steep increase in prices paid for materials and supplies.  Firms may have to start increasing their prices, though it is not clear they have the pricing power to do that just yet.    IMPLICATIONS:The expansion may be broadening.  Housing, though it looks like it is slowing, is still quite strong.  Now we see that the manufacturing sector is picking up the slack that may be forming as home construction settles down.  We still need firms to start investing more heavily, which may start happening during the first half of this year.  While the latest stimulus bill was nothing special, it should get us into the spring.  That could provide the time for another bill to get passed, though the possibility of an additional stimulus package may rest on the outcome of today’s Georgia elections.  If, as expected, the Republicans hold the Senate, any additional aid packages would be modest.  A Democratic takeover, though, would clear the way for a spring bill that takes us through the end of the year.  We should know eventually, though given how slowly the ballots were counted in November, it is hard to say how long is eventually.  Regardless, this is the type of news that investors love to see.  They are exuberant and any supportive data should make them giddy.  With oil prices are rising and input costs seem to be reacting to the improving economy, at least in the U.S., maybe inflation will tick up, which would make the Fed happy.  Basically, the economy may not be able to stand on its own just yet, but it is inching its way to that point and with vaccinations beginning (though much too slowly), there is a light beginning to be seen as we move through the tunnel.