Stocks turned mixed Monday after two key readings: the ISM's manufacturing report and a government report on construction spending.
The Dow Jones Industrial Average was just barely lower, after being down more than 80 points ahead of the report. The S&P 500 index and Nasdaq both moved into positive territory.
The Institute for Supply Managment reported its gauge of manufacturing fell to 48.3 in February from 50.7 in January. Economists had expected a reading of 48, and some feared even worse after the Philadelphia and Empire State regional reports. Any reading below 50 indicates contraction in the sector, though to suggest contraction in the broader economy, the reading would have to be down near 41 or 42.
Construction spending, which plugs into GDP, dropped 1.7 percent in January, wider than December's 1.1 percent decline and the 0.7 percent economists had expected.
Futures had been pointing lower all morning, but got a little bump, which Art Cashin, director of floor operations at UBS, told CNBC that was likely due to a "mistaken rumor" that there was a Federal Reserve meeting today that may result in an emergency interest-rate cut. There is a subcommittee meeting, Cashin points out, but it's "not a very special meeting."
A Fed spokeswoman confirmed that the 11:30 a.m. meeting, to discuss discount rates for a regularly scheduled meeting, is not unusual. "This is a regularly scheduled board meeting,'' Fed spokeswoman Michelle Smith said. "There is nothing out of the ordinary."
Asian markets tumbled Monday, with Japan's Nikkei 225 Average closing down 4.5 percent, but that was largely a response to the U.S. market's decline Friday amid concerns about a recession.
U.S. stocks closed sharply lower Friday, capping off a fourth straight monthly decline, after a trio of reports stirred recession fears and AIG reminded investors that there are more shoes to drop, posting a huge quarterly loss.
Warren Buffett, speaking on CNBC television on Monday, said the U.S. economy is in recession and that "stocks are not cheap."
"I would say, by any common-sense definition, we are in a recession," Buffett said. "We haven't had two consecutive quarters of [negative] GDP growth, but I will tell you, on balance, most people's situations, certainly their net worth, has been heading south now, for a considerable period of time." He restated, however, his view that over the long-run the U.S. economy will do fine and that each generation will live better than the one before it.
As for stocks, Buffett told CNBC's Becky Quick that, while stocks are "not cheap" now, they're not extreme, either. He says he's waiting for when stocks become "very cheap."
Buffett also said he is taking off the table an offer to guarantee $800 billion of municipal bonds backed by troubled bond insurers MBIA, Ambac Financial Group and FGIC. (Read a blog of the CNBC interview with Buffet.)
Meanwhile, CNBC has learned that a group of banks planning a bailout for Ambac may be willing to leave the bond insurer with a single "triple-A" credit rating." In the past, the bank consortium had wanted two triple-A ratings.
Subprime-mortgage defaults and debts are the biggest risks threatening the U.S. economy, followed, at a long distance, by inflation, a poll by the National Association of Business Economistsshowed on Monday.
February sales reports are expected from major U.S. auto makers including Ford and General Motors , and many analysts are forecasting double-digit percentage losses.
Boeing was the top decliner on the Dow after the company lost a $40 million U.S. Air Force contract to rival aircraft maker EADS and its U.S. partner, Northrop Grumman . The contract, to build military refueling planes, was one of the biggest Pentagon contracts in decades.
Energy stocks were among the few advancers after crude oil hit another high, topping out at $103.51 a barrel. Dow components ExxonMobil and Chevron were both up more than 1 percent.
Dow component United Technologies on Sunday madeanunsolicited $2.64 billion bid for ATM maker Diebold, after trying for two years to merge with the company.
United Technologies, the world's largest maker of elevators and air conditioners, said Diebold would make an "excellent fit" due to its "strong market position, U.S. footprint, and balance between product and service revenues."
HSBC Offsets Bad Debts
In the banking sector, HSBC's profit rose 10 percent in 2007, just below market forecasts.
Strong gains in Asia helped HSBC offset a $17.2 billion hit for bad debts largely due to U.S. housing problems.
HSBC shares bucked the European trend and rose nearly 1 percent in London, helped in part by an increase in the bank's dividend payment.
Major home builder Hovanian will report earnings after the bell. Builder stocks have taken a beating as the real estate market has slumped, but Hovanian shares are up more than 21 percent in 2008 as the entire sector has made a strong comeback.
MONDAY: February auto sales
TUESDAY: Ohio, Rhode Island, Texas and Vermont primaries
WEDNESDAY: Factory orders, ISM services index, Fed beige book, Pfizer and Intel analyst meetings
THURSDAY: Weekly jobless claims, Retailers' Feb. sales reports, ECB and BOE rate decisions, Disney shareholder meeting
FRIDAY: February jobs report
Send comments to Cindy.Perman@nbcuni.com.