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MANUFACTURING DATA LIFTS MARKETS - By WSS Research Desk

By Carlos Guillen

Stock are having an incredible upswing so far into today's trading session mostly driven by a better than expected manufacturing data point here at home, overshadowing slowing growth in China and contracting economic activity in the euro zone.

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 June clocked in at 50.9 percent, increasing from the 49.0 percent reported for May and landing above the 50.5 percent consensus estimate; the result was a nice reversal after three months of declines. It is apparent that the main drivers of the higher than expected result came from a recovering U.S. housing market and stronger auto sales. Of the 18 manufacturing industries, 12 are reported growth in June. Given that a reading below 50 percent indicates the manufacturing economy is generally contracting, this PMI result puts the U.S. manufacturing sector back into growth mode after landing in contraction territory back in May. Also encouraging was that, given that a PMI over 42.2 percent over a period of time generally indicates overall economic expansion, the result also indicates the 49th 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 encouraging jump. In fact, new Orders increased 51.9 percent in June, up from the 48.8 percent posted for the prior month. So while the U.S. is still in slow economic expansion, the sudden increase in new orders may be indicative of an upcoming acceleration in economic expansion in the short term. Yet on the other hand the employment component, at 48.7, was the worst reading since September 2009.

In China, PMI slipped to the lowest level in four months, adding to the evidence of slowing growth in the world's second largest economy. The official government PMI reading landed at 50.1 in June, in line with economists' forecast. Perhaps more discouraging was that the HSBC China PMI reading declined to 48.2, its lowest level since September of last year, below 50, showing contraction, and landing below economists' 48.3 forecast.

While PMI declined in China. A gauge of manufacturing in the 17-nation euro area increased to 48.8 last month from 48.3 in May. That's above an initial estimate of 48.7 on June 20; however, the gauge has been below 50, indicating contraction, since July 2011. Nonetheless, the better than expected result had European markets up slightly today.

In all, stock markets today are reacting very well to the good but not great US manufacturing result as it appears to be not too cold and not too hot, reassuring investors that the Fed will continue on its easy monetary policy trajectory.

Construction Spending

May US construction spending came in at an annual rate of $874.9 billion, up 0.5% from April which was just below the 0.6% consensus estimate. Total public construction was up 1.8%, rebounding from a slight dip in April, while private construction was flat. The good news is that residential construction was up 1.2% versus a slight drop in April. Looking at private sector nonresidential activity, it was flat with declines in commercial (-2.5%) and manufacturing (-8.1%) being offset by increases in transportation (+3.7%) and power (+2.9%), among others.

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