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By Carlos Guillen

Equity markets are mixed during today's trading session as investors assessed the effects of a disappointing U.S. manufacturing report on the potential quantitative-easing moves by the Federal Reserve.

Perhaps the most important fundamental bit of economic data out today was the Institute for Supply Management (ISM) Purchasing Managers' index (PMI), considered by many to be a very important health indicator of the manufacturing industry here at home. PMI in May clocked in at 49.0 percent, decreasing from the 50.7 percent reported for April and landing below the 50.9 percent consensus estimate; the result was the lowest since June 2009 when PMI was 45.8. It is apparent that the main drivers of the lower than expected result are the across-the-board federal budget cuts and the limited improvements in the global economy, which are prompting factories to cut back on production. Given that a reading below 50 percent indicates the manufacturing economy is generally contracting, this PMI result puts the U.S. manufacturing sector into its first month of contraction in half a year. On the positive side, given that a PMI over 42.2 percent, over a period of time, generally indicates overall economic expansion, the result also indicates the 48th consecutive month of overall economy growth.

It should also be noted that new orders in the ISM report, considered to be an important leading indicator, showed a rather discouraging decline. In fact, new Orders decreased 48.8 percent in May, down from the 53.2 percent posted for the prior month. So while the U.S. is still in economic expansion, it is doing so at a decreasing rate, and the sudden decrease in new orders may be indicative of an upcoming economic contraction in the short term.

In all, today's trading session has been very volatile as the data presented had its pros and cons. On the one hand the PMI data gave an indication of slowing growth, clearly not a reason to be cheery, but on the other hand the result may give the Fed the impetus it needs to continue its loose monetary policy, which is fabulous for stocks. At the moment the overall reactions are mixed, as reflected by the Dow Jones Industrial Average, which is up about 0.3 percent (lifted by Merck and Intel) after dropping 1.36 percent this past Friday, while the S&P is down 0.2%.

Construction Spending
By David Urani

Housing stocks are taking a hit today, and it may be related to the Census' construction spending report for April. Total US construction was actually up 0.4% from March but that was below the 1.0% consensus estimate. Where the problem lies is in residential construction showing a 0.2% decline versus a 0.7% increase for non-residential. Certainly that's a worrisome stat for those fretting about the housing recovery.

However, if you look yet deeper into the data it seems it's not quite as bad as it looks. Construction for new single-family residential units was actually up 1.4% for the month, and that's actually pretty good news for homebuilders. The residential drop came from a 3.3% decline in non-new housing, or improvements; the drop here may actually be attributable to the decreased supply of existing homes.

Consequentially, I'm actually not too worried about this report with respect to the home builders although I am starting to become a little worried at how quickly the Street seems to be inclined to sell off the sector on any hint of bad news.

Apart from the residential side, total private construction was up 1.0%, partially offset by a 1.2% decline in public construction. Private power construction in particular stood out, up 10.8%, although manufacturing was down 2.6%.