Markets see this morning's data pointing to U.S. economy slowing

06/01/2011 2:01 pm EST


Jim Jubak

Founder and Editor,

If you’re worried that the U.S. economy is slowing, you got plenty of data this morning to confirm that view.

The Institute for Supply Management Manufacturing Index, a survey of purchasing managers in manufacturing companies that asks whether business conditions are better or worse than they were last month, fell to 53.5 in May from 60.4 in April. Although any reading   above 50 indicates that the economy is expanding, the drop would seem to confirm other evidence of a slowing in manufacturing activity. The drop was also bigger than the decline to 57.6 that economists were expecting, according to The index is now at its lowest level since September 2009.

The market’s fragile optimism from yesterday’s solid rally wasn’t enough to sustain this bit of bad news plus a slowing in the purchasing managers indexes in China and Europe. And a report from the ADP Employer survey showing that the U.S. economy only added 38,000 workers in May. As of 1 p.m. in New York the Standard & Poor’s 500 stock index was down 1.36% and the Dow Jones Industrial Average was down 1.43%.

What none of this data tells investors, however, whether what we’re seeing is a temporary slowdown or the beginning of a lasting downward trend.

Certainly any investor can point to events that might have produced a temporary slowdown in May. For example, weekly gasoline prices in the United States, as surveyed by the Energy Information Administration peaked on May 9 at $4.02 a gallon and stayed above $4 a gallon until dropping to $3.90 in the weekly survey of May 23. And disruption to global supply chains from the March Japanese earthquake and tsunami continues to constrain output in industries that include autos and electronics. For example, on May 26, Honda Motor said U.S. production of its small cars is running at just 50% of capacity.

The Federal Reserve is still saying that the slowdown will “probably prove temporary.” At least that’s what New York Fed President William Dudley said in a May 6 press conference.

The next significant data on economic conditions will come with Friday’s release of payroll and unemployment numbers. Next week, June 6-10, is light on economic data.

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