Economists are digesting another round of conflicting economic data in the latest economic news, as U.S. manufacturing activity contracted in May for the first time in six months.
Last week, the Institute for Supply Management-Chicago’s PMI gauge jumped to 58.7 in May from 49.0 the month before, surpassing economists’ forecasts of 50. However, today we have learned that new orders slipped and there was less demand for exports.
The Institute for Supply Management Manufacturing PMI gauge dipped to 49 in May from 50.7 in April, missing estimates that it would hold steady at 50.7. It was the lowest reading since June 2009, and indicated the sector contracted for the first time since November 2012.
A reading below 50 indicates contraction in the manufacturing sector. The last time the ISM manufacturing index fell below 50 was November 2012, shortly after the U.S. east coast was hit by a massive storm.
The gauge for new orders dropped to 48.8 from 52.3, while a measure of employment edged down to 50.1 from 50.2. Production fell to 48.6 from 53.5.
The exports index fell to 51.0 from 54.0, while imports held up relatively better, slipping slightly to 54.5 from 55.0.
Though growth has cooled in recent months, before May the national reading had managed to stay in expansion territory, unlike some regional reports that have shown shrinkage.
Economic growth overall in the second quarter is expected to slow from the first quarter’s 2.4% pace.
The markets ticked higher on Monday even though traders are digesting the aforementioned disappointing data on the U.S. manufacturing data and mixed auto sales reports.
Today’s Markets
Earlier this morning at 10:09 a.m. ET, the Dow Jones Industrial Average jumped 84.7 points, or 0.56%, to 15197, the S&P 500 advanced 3.2 points, or 0.2%, to 1634 and the Nasdaq Composite declined 2.5 points, or 0.07%, to 3453.
The markets ended what was a strong month on a week note last week. The S&P 500 took its biggest drop in more than a month Friday, but still rose 2.1% for the month of May, which is its seventh-straight monthly advance.
The Federal Reserve’s plans to exit its massive bond-buying operation, otherwise known as QE3, concerned and excited Wall Street at the same time. The markets are expected to stay fixated on the central bank as several key reports are released on the U.S. economy, capped with the all-important monthly jobs report on Friday. Chris Beauchamp, a market analyst at IG wrote in an e-mail.
Everything investors do this week will be conducted in the shadow of [the May jobs report], as they try to pre-empt the next move from the world’s most powerful central bank.
Dan Greenhaus, chief global strategist at BTIG, wrote in an email:
We can now say with even more confidence that there is literally zero chance the Fed announces any adjustments to its QE program in June and along with the decline in inflation measures, the risks are growing that our September call looks optimistic.
PMI readings out of China also portrayed a mixed bag for the world’s No. 2 economy. The official data reported a tiny increase in the rate of espansion in the manufacturing sector for the month of May, rising to 50.8 from 50.6. However, a separate survey from HSBC showed the sector contracting for the first time in seven months, falling to 49.2 in May from 50.4 in April.
Sadly, the most optimistic piece of economic news for Europe came in the report from Markit, which showed the eurozone manufacturing sector deteriorated at the slowest pace in 15 months helped balance out that report. The metric jumped to 48.3 from 46.7. Germany, France and Italy – the bloc’s three biggest economies – all realized modest improvements too. Chris Williamson, chief economist at Markit wrote in the report:
Although the euro area manufacturing economy continued to contract in May, it is reassuring to see the rate of decline ease to such a marked extent. The sector still seems some way off stabilising, however, and therefore remains a drag on the economy.
As far as the auto-industry goes, the Big Three U.S. automakers reported monthly sales figures on the day. Ford (F) saw a 14% increase in sales for the month, while Chrysler’s sales climbed 11%.
In corporate news, Apple (AAPL) will face the U.S. Justice Department in court amid allegation the tech titan conspired to fix e-book pricing.
In commodities markets, oil and gasoline futures were up. The benchmark U.S. crude oil contract climbed 69 cents, or 0.75%, to $92.65 a barrel. Wholesale New York Harbor gasoline rallied 1.6% to $2.799 a gallon. Gold advanced $3.80, or 0.27%, to $1,397 a troy ounce.
Foreign Markets
The Euro Stoxx 50 rose 0.64% to 2787, the English FTSE 100 dipped 0.11% to 6576 and the German DAX climbed 0.51% to 8391.
In Asia, the Japanese Nikkei 225 plunged 3.7% to 13262 and the Chinese Hang Seng tilted lower by 0.49% to 22282.
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