China's Purchasing Managers Index was a still robust 53.9 (50 is the dividing line between expansion and contraction), but it was expected to be 54.5 or so.
The conclusion is that China's government attempt to slow the economy and prevent inflation is bearing fruit. Avoiding inflation is good, slowing growth when the rest of the world is struggling is not.
The US Institute of Supply Management Index for May was released at 10AM Tuesday and came in better than expected at 59.7 (consensus was 59.4) and, while a very good number, is a touch off from last months 60.4. It might seem like splitting hairs, but with China ever so slower and the US ever so slower the question needs be asked: have we seen the best of the post recession growth phase? I simply ask the question. The ISM for manufacturing would imply a GDP growth of almost 5% if that were the only number. But manufacturing is about 13% of the US economy and even less of employment. While manufacturing is in a "V" shaped recovery, the rest of the economy is not.
Construction spending rose 2.7%, much better than hoped for and a good bit better than last month's .4% gain. This is the first two month gain since 2007. The 2.7% increase was also the best month since August of 2000. Unfortunately the areas of biggest gain came from the very volatile communication, power, and manufacturing sectors. You can't rely on these areas to show consistency.
I think our economy will slow, but not stall or stop. I do think earnings estimates will come down and stocks typically struggle when that happens. I believe that last year's fourth quarter will be far and away the best for GDP growth we will see for a while. I hope the next few quarters can match the preliminary read for Q1 at 3.0%, but I suspect we will not. The dollar will continue to be the best house in a bad neighborhood and I think the S&P will need to spend some time backing and filling between 1040 and 1100.