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MONDAY DATA: PMI CAGE MATCH, CONSTRUCTION SPENDING

Investors began a new week and month on Monday with a good, old-fashioned, ISM/S&P Global PMI slap fight.

The upshot is that factory activity continued to accelerate last month. The rate of expansion is the source of minor disagreement.

The Institute for Supply Management's (ISM) Purchasing Managers' Index (PMI) USPMI=ECI added 1.3 points in May to print at an even 54.0.

Analysts expected a meager 0.3-point acceleration.

ISM's manufacturing PMI has now enjoyed five consecutive months north of the magic PMI level of 50, the dividing line between monthly contraction and expansion.

Wandering into the weeds, new orders and production gained momentum, new export orders moved from contraction into expansion, and the employment metric remained in contraction, albeit at a shallower pace.

The prices paid element -- an inflation predictor -- eased 2.5 points from a multi-year high to a still-white-hot 82.1.

"Manufacturing firms are dealing with the cross-currents of upside risks from the SCOTUS ruling on tariffs, orders for things that are difficult to source through the Strait of Hormuz, and the continued momentum in AI-related investment against the downside risks from supply chain disruptions and energy costs due to the war in Iran," writes Thomas Simons, CFA, at Jefferies.

Commentary from ISM's survey participants was dominated by uncertainties and supply headwinds related to Middle East turmoil, tariffs, and inflation.

But S&P Global also had its say, with its final take on May manufacturing PMI USMPMF=ECI, which printed at 55.1, not quite as robust as its initial "flash" reading of 55.3, but 0.6 point stronger than April's final take.

"At first glance, the manufacturing sector seems to be firing on all cylinders but lift the hood and the picture is not so clear," writes Chris Williamson, S&P Global's chief business economist. "Since the outbreak of war in the Middle East we have seen production and demand buoyed by stock building as companies worry over rising prices and supply difficulties."

"This stockpiling was again widely evident in May and makes it hard to take an accurate reading on the underlying health of the manufacturing economy, as growth will cool once this stock build has run its course," Williamson adds.

Input and output costs both rose at their fastest pace in 10 months.

The S&P Global and ISM indexes differ from each other in the weight they apply to the various components (new orders, employment, etc).

Here's how closely they agree (or not). The dueling PMIs are set to meet again on Tuesday, when they spar over the services side of the coin.

Separately, expenditures on construction projects USTCNS=ECI increased by 0.4% in April, or double the consensus estimate, according to the Commerce Department.

A peek beneath the hood reveals public and private sector outlays both increased by 0.4% on a monthly basis. Compared with last year, however, private construction spending was unchanged, while government-funded construction spending was up 3.7%.

Spending on residential projects -- the erstwhile tentpole of construction spending -- increased by a healthy 0.8%, and is now up 1.7% year-on-year.

This seemingly contradicts recent housing market data, including the 6.2% drop in new home sales in April, the continued pessimism of homebuilders (NAHB), and the respective drops in single-family housing starts and building permits.

(Stephen Culp)

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