KEY DATA: Durables: +4.9%; Excluding Aircraft: 1.7%; Capital Spending: 3.9%/ Claims: +10,000

IN A NUTSHELL: “The broadly based rise in demand for big-ticket items is a sign that manufacturing sector is starting to stabilize.”

WHAT IT MEANS: The weakest link may still be the weakest link, but it may not be that weak anymore. The manufacturing sector, battered by the rising dollar and the collapse in oil prices, has faltered recently. However, given the surge in durable goods orders in January, the problems are starting to disappear. Yes, the wildly volatile aircraft sector accounted for about two-thirds of the gain, but demand for private and defense airplanes was not the only source of strength. Machinery, electrical equipment, computers, communications equipment, motor vehicles and metals were all up solidly. As for business capital spending, there was a strong rebound there as well. One month doesn’t constitute a trend, but maybe the oil complex cut backs are easing and demand in the rest of the economy will start showing through. Though orders were strong, so were shipments, which led to a modest rise in backlogs. Order books need to fill faster if production is to accelerate.

On the labor market front, jobless claims rose solidly last week, but that is hardly a concern. The previous week’s level was extremely low, so we just got back to very low levels of claims. The data are consistent with a solid rise in payrolls in February.

MARKETS AND FED POLICY IMPLICATIONS: So, what should we make of the economy? If the weak is no longer that weak, and the strong, which is the labor market, remains strong, then I think it is fair to say the economy is in good shape. But investors don’t seem to care that much about the economic data. If oil prices fall, so do stock prices. If oil prices rise, so do stock prices. So, maybe we should just forget the economy. Not. Ultimately, the umbilical cord binding stock and oil prices together will be cut and economic fundamentals will once again matter. Will the markets rebound at that point? It really depends upon which stocks you are looking at. Domestic firms should do just fine. However, international firms have to worry about the dollar and growth in the countries where they do business. The dollar has stabilized, at least when you look at the indices, so executives will have to come up with other excuses if their earnings don’t do as well as investors thought they should. Regardless, the Fed will not place huge importance on foreign earnings, and therefore the stock prices of international companies, unless the markets crash and burn. It is still the U.S. economy that is job one. Friday we get January incomes, spending and the all-important Personal Consumption Expenditure index. Other inflation measures have been moving up and if the PCE follows, that would be another reason to think the Fed members will start talking about future rate increases.