Manufacturing Slows in August; Tech and Energy Stocks Rally

Includes: DIA, IVV, SPY
by: Judith Levy

Manufacturing growth slowed in August on a fall-off in new orders and construction spending unexpectedly dropped in July, according to data released Tuesday by the Institute for Supply Management [ISM]. The ISM's index of national factory activity retreated to 52.9 in August, its lowest in five months and down from 53.8 in July. The fall slightly exceeded economists' expectations of 53.0, though any reading above 50 constitutes growth. The result is "not a collapse by any means, but it does imply some slowing," said UBS Securities senior economist James O'Sullivan. The new orders index dropped to 55.3 from 57.5, while prices paid fell to 63.0 from 65.0, suggesting that slower growth is reining in inflation somewhat. Stocks ended higher after the report, with particular strength seen in the technology and energy sectors (which the WSJ notes are perceived to be relatively insulated from credit-market problems). The employment index rose to 51.3% from 50.2%. "Markets have been on edge for negative growth news, so this morning's numbers came as a little bit of relief," said John Shin, senior economist at Lehman Brothers. The Commerce Department, meanwhile, reported that construction spending fell 0.4% in July to an annual rate of $1.17 trillion, its largest drop since January. The fall was led by a 1.4% drop in spending on private residential projects. Economists were expecting construction spending to be flat in July from June.

Sources: Bloomberg, Wall Street Journal, MarketWatch I, II, Reuters
Commentary: Economic Report Summary: Consumer Spending Pullback, Manufacturing Rebound Out Of Steam?Economic Report Summary: Slow Housing Stats, Continued Rebound In ManufacturingISM Index: Factory Sector Posts Strong June

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