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Two spreadsheet errors at the Institute for Supply Management added some extra volatility to the markets today, and fortunately it was resolved in favor of a relatively healthy outlook. The May reading for the manufacturing index rose to 55.4, up slightly from April's reading of 54.9.

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As the chart above shows, the current level of the ISM index is consistent with overall economic growth of about 4% or possibly 5% in the current quarter. That is entirely reasonable, since there should be some "bounce back" in the current quarter after the weather-depressed first quarter. But it doesn't necessarily imply that the economy has accelerated from the 2-3% pace of the past few years. The outlook for growth remains modest, and the economy still has a very large "output gap," which could be as large as 10%.

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The outlook for U.S. manufacturing is a bit better than that for the Eurozone.

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But as the chart above suggests, the continued improvement in Eurozone swap spreads (red line) points to further gradual improvement in Eurozone manufacturing conditions.

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The Export Orders component of the ISM index is in relatively healthy territory, suggesting that global manufacturing conditions remain healthy-and that the much-feared China slowdown has not been significant.

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The Employment component remains only modestly positive.

Overall, there is nothing to get excited about in today's ISM report, but it does reaffirm that the negative growth in Q1 GDP was only temporary.

Source: Manufacturing Report A Modest Positive