Latest factory, services data point to recession bottom

Just call them two "modest positives" for the U.S. economy.

The Institute for Supply Management's services index continued to show a slowing contraction in the nation's services sector in May, while the U.S. Commerce Department announced that factory orders rose 0.7 percent in April, slightly below the consensus estimate.

The ISM services index, also known as "the non-manufacturing index," rose to 44.0 percent in May from 43.7 in April -- a level that still indicates a contraction, but its highest reading since September. Economists surveyed by Bloomberg News had expected the index to rise to 45.0 in May. The index was at 36.3 in March. Readings above 50 indicate an expansion; under 50, a contraction. The ISM's new orders index fell to 44.4 percent in May from 47 percent in April.

Factory orders rebound in April

Meanwhile, factory orders rebounded in April, rising 0.7 percent after declining 0.9 percent in March, the Commerce Department announced Wednesday. It was only the second rise in factory orders in the last 10 months. However, the economic bulls will point to the fact that factory orders have risen in two of the last three months.

Economists surveyed by Bloomberg News had expected April factory orders to rise 1.1 percent.

Excluding the often-volatile transportation component (which includes airplanes and cars), factory orders increased 0.1 percent in April.

Sees improving conditions

David Semmens, an economist for Standard Chartered Bank in New York, says others may talk about only minor economic progress, but he sees steady, incremental progress.

"The outlook is certainly starting to look better," Semmens told Bloomberg News Wednesday. "The rate of declines isn't worsening, but it'll be a very anemic recovery. The consumer is going to take a back seat and hold back on spending."

Returning to the factory orders report, April new orders for durable goods increased 1.7 percent, shipments declined 0.2 percent, unfilled orders decreased 1.2 percent and inventories dropped 1.3 percent. The nation's inventory-to-shipment ratio fell slightly, to 1.45 from 1.46 in March.

Economists follow the factory orders statistic because it provides one of the most comprehensive surveys of advance orders for durable goods - - how busy factories are likely to be in the period ahead. Factory orders also are a major value-added component of the U.S. economy.

Economic Analysis: The latest factory and services sector data were not a royal flush, to borrow a poker term, but they still represent a decent hand. The ISM data was a surprise, the Commerce Department's factory order data, less so. On balance many economists still see a slowing of the pace of contraction in the nation's services sector -- and that typically precedes the start of the bottoming process. Still, it's important for investors to remember that we'll need three, four months of solid factory orders, an expanding services service, as well as improving statistics in other categories, before we can say a bottom to the recession is in place. In other words, while I know I sound like a broken record, there's much work ahead, and there's no guarantee that the nation will see much of an uptrend in commerce in the near future. In the aggregate, the U.S. economy is still net-short dollars, but innovation and ingenuity can help offset that shortfall and lead the way out of the abyss.

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