Manufacturing activity in the U.S. continued to expand in May, the Institute for Supply Management said - but a coming slowdown in the Chinese manufacturing sector could put a damper on stocks ' Tuesday run-ups.
According to the ISM, May marked the 10th consecutive month of manufacturing growth. The expansion of goods-producing activity was slower in May than it had been in April, but the ISM's manufacturing index registered a score of 59.7 - better than the 59.4 than economists polled by Briefing.com had expected.
Thanks to the ISM report, and the Commerce Department's news that construction spending surged, stocks had posted modest gains at midday Tuesday. But data from China could sour the positive sentiment running through the equities markets: The government's official purchasing managers index slid in April, a sign that of the growth China's manufacturing sector is slowing.
To be sure, the PMI decline isn't unexpected. Policymakers in China have been trying to rein in inflation and asset-bubble formation for months, and their efforts appear to be working: Input prices plummeted between March and April.
Nevertheless, the global economic recovery is dependent on Chinese growth, and a slowdown in China's manufacturing sector could portend a curtailed recovery.
By Steve Monfort