A pair of fresh economic indicators arrived Monday and provided some relief from concerns about inflation and rising interest rates.
The manufacturing sector of the economy remained subdued last month, according to the latest survey by the National Association of Purchasing Managers. Construction spending advanced in June but at a slower pace than earlier in the year.
Investors, particularly in the financial services sector, have been anxiously awaiting new data on the economy as possible portents of a Federal Reserve move to raise short-term interest rates again at its next Aug. 24 monetary policy meeting, three weeks from today.
The purchasing managers' composite index, an overall gauge of manufacturing activity, was 53.4 in July. That was down from a month earlier and below the level expected by many business economists.
By contrast, the June index reading was 57. A reading above 50 generally signals expansion, and one below 50 means a contraction of manufacturing.
"The industrial sector remains sluggish," said Bruce Steinberg, chief economist at Merrill Lynch & Co. The latest reading "brings the purchasing managers index into better correspondence with other measures of industrial activity, most of which remain on the soft side," he told clients.
Though the composite index fell, the survey's price index edged up to 54.7 in July, from 53.1 in June, but that mainly reflected volatile oil prices, Mr. Steinberg pointed out. Meanwhile, "the purchasing managers indicated that no commodities were in short supply."
Nor does the change in the purchasing managers' price index suggest that higher readings are ahead for the consumer price index. "Any relationship between commodity prices and the core CPI has pretty much dissolved in the 1990s," Mr. Steinberg said.
Another economist, Ian Shepherdson of High Frequency Economics in Valhalla, N.Y., said the purchasing managers' orders index, which fell to 54.4 from 61.7, suggests moderation but not a slump.
He said he had expected a stronger report and cautioned that "one month does not a make a trend, especially in summer when the seasonal adjustments are less reliable." Notably, retooling shutdowns of auto assembly plants can skew numbers.
Meanwhile, both public- and private-sector construction spending moved 0.5% higher in June, according to the Commerce Department, but that was a significantly smaller rebound from several prior months than some had predicted.
In addition May construction spending was revised to a 1.4% decline from the previously reported 0.9% fall.
"The 0.5% June increase barely dented the cumulative 2.8% fall recorded in the previous three months," said Mr. Shepherdson. Moreover, "the weakness has been spread through all sectors, residential and commercial, public and private, and is very hard to square with the mass of other evidence pointing to economic strength."
He suggested that labor shortages may be holding back activity, "at least in some areas." Shortages of building supplies like lumber and sheet rock may also be a bottleneck, he said.
Mr. Steinberg, noting that nonresidential construction is down 4.6% from a year earlier, offered a firmer view. "The construction cycle has clearly peaked," he said.
Neither of Monday's reports made the impact that is expected from Friday's report on the labor market in July. That involves two surveys by the Labor Department, one of jobs created-new payrolls-and the other of job seekers-that is, the unemployment rate.
Mr. Shepherdson said he expects the Fed to raise rates Aug. 24 but said Monday's subdued reports from both the manufacturing and construction sectors suggest that the central bank will then move into a holding pattern.