INSTANT VIEW: Service sector decline slows; factory orders up
NEW YORK | Wed Jun 3, 2009 11:01am EDT
NEW YORK (Reuters) – The U.S. services sector shrank again in May, according to a report released on Wednesday, while factory orders posted an increase.
KEY POINTS: * The Institute for Supply Management’s nonmanufacturing index edged up to 44.0 in May from 43.7 in April. * Economists’ median forecast in a Reuters poll called for a reading of 45.0, below the 50 mark which divides expansion from contraction. The services sector represents about 80 percent of U.S. economic activity, including businesses such as banks, airlines, hotels and restaurants.
FACTORY ORDERS: New orders received by U.S. factories rebounded in April, government data showed on Wednesday, but the previous month’s figure was sharply revised downwards to show a steeper drop.
KEY POINTS: * The Commerce Department said factory orders rose 0.7 percent in April after a revised 1.9 percent drop in March, previously reported as a 0.9 percent fall. It was the second increase in the last three months. * Economists polled by Reuters had expected factory orders to rise 0.9 percent in April from the prior month. Excluding transportation items, factory orders inched up 0.1 percent in April from March’s 2.1 percent plunge. This was the second increase in the last nine months, the department said. * Orders for costly durable goods – items like cars and refrigerators intended to last three years or more – were slightly revised downwards to show an increase of 1.7 percent in April instead of the 1.9 percent rise previously reported. That followed a 2.2 percent decline in March. * Orders for non-defense capital goods excluding aircraft, considered a measure of business confidence, fell 2.4 percent in April.
STEVE GOLDMAN, MARKET STRATEGIST, WEEDEN & CO., GREENWICH,
“Generally stocks are moving off the vantage point there’s got to be an economic recovery shortly.
“In general, (how stocks move off) the data depends on where we stand as far as the market — have we had a large gain, and are we vulnerable, have we pulled back already. The data was a tad weaker on the manufacturing side.”
MARY ANN HURLEY, VICE PRESIDENT, FIXED INCOME TRADING, D.A.
DAVIDSON & CO, SEATTLE:
“The non-manufacturing index is more important than the factory orders because it has a bigger impact on the economy. It did go up, but not as much as expected, but this reinforces the belief that the decline in the economy is slowing.
“Bonds are pretty much unchanged across the board. We’re definitely looking ahead to Friday’s unemployment report.
“Factory orders came in a little bit weaker than expected, but the previous month was revised downward, so the number was really more negative than what the headline printed. The key component, capital goods orders ex-aircraft, fell again for the second straight month.
“These are really not primary economic reports, so the market is just watching stocks and looking forward to Friday’s unemployment report. I thought the numbers were a little more negative, it certainly calls into question about an economic rebound. There’s certainly not a lot of green shoots in this report.
GAIL DUDACK, CHIEF INVESTMENT STRATEGIST, DUDACK RESEARCH
GROUP, NEW YORK:
“We were at the edge of the abyss earlier in the year and now we find that we’re not falling off the cliff, we’re seeing some green shoots but it’s not going to be a straight line, V-shaped recovery.
“The whole pattern should become a little bit more erratic. It’s not a surprise to me. The fact that the market is responding to the (ISM data) with a pause is actually quite healthy.”
TYLER VERNON, PRINCIPAL AND PORTFOLIO MANAGER, BILTMORE CAPITAL
ADVISORS, PRINCETON, NEW JERSEY:
“We would agree that the pace of economic contraction is slowing. We still don’t think we are out of the woods yet. There is still potential for a double dip. Unemployment is still going to the moon and deficits are rising.”
BRIAN DOLAN, CHIEF CURRENCY STRATEGIST, FOREX.COM, BEDMINSTER,
“ISM non-manufacturing and U.S. factory orders were slightly below expectations and that has fueled profit-taking on euro-long and dollar-short positions. You have to remember we are in the middle of a pullback in dollar selling. This continues a trend that negative data is supportive of the dollar. Bernanke’s comments were dollar-negative, but right now, the market seems to be focused on buying the dollar after steep losses in recent sessions.”
TODD CLARK, MANAGING DIRECTOR, STOCK TRADING, NOLLENBERGER
CAPITAL PARTNERS, SAN FRANCISCO:
“I don’t think there is anything that is surprising in any of the stuff that is coming out. The ISM non-manufacturing number was a little lighter than expected. That is the largest part of the economy, so it’s a little bit of a disappointment that it wasn’t a little bit higher.
“But the overwhelming focus is going to be on the jobs situation – the ADP number this morning was not great and we have a big jobs number on Friday. We need to see some kind of stabilization in the employment situation before people are really going to declare some kind of stability in the overall economy or even a chance of getting some growth.
“This ISM non-manufacturing number is still below 50, it’s still not a growing economy, you need something north of 50 to be showing some growth. So while the rate of decline may have slowed, the fact of the matter is we’re not stable and not seeing anything close to growth. So people are taking a little money off the table given the recent rally that we’ve had.”
JOHN CANALLY, ECONOMIST, LPL FINANCIAL, BOSTON:
ON ISM SERVICES: “It’s a bit of a disappointing, but it’s moving in the right direction. There’s some improvement, but we are not out of the woods yet.
“The components are mixed. It’s a disappointment with the new orders…The worst of the employment decline may be behind us. Still all the components are below so we are looking at less worse but we are not expecting any expansion.
FACTORY ORDERS: “We are de-stocking inventories at a slower rate, which should be helpful for GDP.”
JONATHAN BASILE, ECONOMIST, CREDIT SUISSE, NEW YORK:
“It kind of fits with all the other news we’re getting: things are less bad but they’re not yet growing. It’s encouraging to see this stabilization process start to take hold, but at the same time the weakness does persist. These are still indications that we’re not totally out of the woods yet.”
DAN GREENHAUS, ANALYST AT MILLER TABAK & CO IN NEW YORK
” was less than expected, but it was also the second straight month of moving higher. It is beginning to move into territory that is less of a contraction than we’ve seen, but it’s still not at a point that is indicating robust economic growth.
“Factory orders have been incredibly weak since August of last year. They’ve only recently shown signs of stabilization, so in that respect, despite being weaker than expected, any positive reading is a desired outcome at this point.”
GARY THAYER, SENIOR ECONOMIST, WELLS FARGO ADVISORS, ST. LOUIS,
“The ISM non-manufacturing index showed a small improvement, but still contraction, which suggests that while we’re seeing some stabilization outside of manufacturing and the recession is waning, we’re not out of the woods yet.
PETER KENNY, MANAGING DIRECTOR, KNIGHT EQUITY MARKETS, JERSEY
CITY, NEW JERSEY:
“The market needs a breather. The market simply wants to digest. There’s a reason to be cautious. The market has gotten ahead of itself and Bernanke’s testimony will confirm that. This is positive and healthy and absolutely necessary.
MARKET REACTION: STOCKS: U.S. stock indexes were flat. BONDS: U.S. Treasury debt prices rose slightly. DOLLAR: U.S. dollar fell against the euro.