Macroblog

The essence of the story, from Bloomberg:

Growth in U.S. manufacturing unexpectedly slowed for a second month in June as companies curbed expansion plans in the face of higher energy costs.

The Institute for Supply Management's factory index fell to 53.8 from 54.4 in May. Readings above 50 indicate expansion in manufacturing, which accounts for about 13 percent of the economy.

Manufacturers are trimming stockpiles, the survey showed, and a gauge of employment fell to the lowest since October 2003...

The commentary ranged from pessimistic, to sanguine, to relatively optimistic. The pessimistic,   from MarketWatch:

Richard Iley, economist at BNP Paribas, said the decline in the overall index "underlines that the economy is losing momentum."

"This shows that there is some moderation in manufacturing going into the second half, and that slowdown will be reflected in slower economic growth,'' said Elisabeth Denison, an economist at Dresdner Kleinwort Wasserstein in New York. ``Manufacturers are scaling back to bring inventories into line with demand.''

...and from Reuters:

"I don't think it's too earth shattering. It's sort of a continuation of what we've been experiencing lately -- a little more sluggish growth," said Jon Brorson, managing director of growth equities at Neuberger Berman in Chicago. "I don't see any real change from the pace we've been on over the last several months."

Finally, the relatively optimistic, from the Wall Street Journal...

Briefing.com chief economist Tim Rogers, however, pointed out that the new-orders component of the index, a leading indicator for future growth, gained 4.2% to 57.9, indicating the June decline could be temporary.

... and MarketWatch:

Norbert Ore, chair of the ISM factory survey committee said the jump in new orders "provides encouragement for the third quarter."

Participants in equity markets were not saddened.  From Liz Rappaport, at The Street.com:

Monday's data showed a crack or two [in the U.S. economy], helping spur a rally on a holiday-shortened session.

Both the Institute of Supply Management's manufacturing index and U.S construction spending came in weaker than expected, reinforcing the view that the Federal Reserve's tightening campaign may end soon.

Bear Stearns economist John Ryding said in a research note that "If other June data also paint a picture of moderation … ahead of the August FOMC meeting, the Fed may want to pause to see whether the slowdown is temporary or not."

He added: "However, inflation readings remain elevated and we still see the Fed raising the funds rate to 5.5 percent at some point in the third quarter."

and from the previously mentioned chief economist at Briefing.com:

[Tim Rogers] thinks the Fed will raise the target for the federal-funds rate again in August to 5.5% and then stop as the economy starts to slow down.

And once again from the Wall Street Journal:

Despite Monday's advance, some investors are growing concerned that the market is entering a bearish phase. Kenneth Tower, chief market strategist at CyberTrader, thinks investors would be wise to become more defensive despite signs the Fed may stop raising rates soon. High interest rates and energy prices and a slowing housing market are likely to take a toll on the economy, putting pressure on earnings and sending stocks into a bear market after roughly four years of gains, he said.

"I think people are still too optimistic," he said. "At the end of a bull market, expectations are too high and growth begins to disappoint. Then expectations start to come down, and that's where I think we are."

Have a happy 4th.