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Factory growth slows to a crawl

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The major indexes have reversed earlier gains and now trade near unchanged levels after the 10:00 AM release of the Institute for Supply Management's Index (ISM) registered a 50.5 reading, which was below the 52.0 reading forecasted by economists. While a reading above 50.0 shows some growth still present at the factory level for a fourth-consecutive month, the drop from January's 53.9 reading and nearing of the 50.0 level has seen some weakness creep back into the major indexes.

The Institute said, "Comments from purchasing and supply executives are quite mixed. While there is some evidence of business picking up, particularly in electronics, many express concerns. Higher energy prices are squeezing already thin margins. The threat of war is viewed as a major deterrent in a number of industries."

Several categories retreated from January's readings, with employment remaining the weakest component, which fell to 42.8 in February.

The measure of new orders was 52.3 last month versus 59.7 in January. The production index was 55.4 compared to 56.3. The backlog of orders index rose to 49.00 from 4500. Employment, which is still contracting, fell to 42.8 from January's 47.6.

Factories are seeing input prices increase at a time many are still unable to raise prices. The ISM measure of prices paid rose to 65.5 after 57.5 a month earlier.

A separate report issued at 10:00 AM EST showed construction spending in January rose 1.7% to a record level, the Commerce Department said. Construction outlays totaled $877.9 billion, at an annualized rate.

That increase in January followed an upwardly revised 1.5% rise in spending for building projects in December. Economists looked for a much tamer 0.5% increase in January spending.

Outlays for private construction rose to a $667.9 billion annual pace, also a new high. Residential construction outlays rose to record-high $452.6 billion, gaining 1% or more for a fourth straight month, thanks to low mortgage rates not seen since the mid-1960s.

Non-residential private construction slid to $157.9 billion, a drop of 0.3%.

Public construction spending increased for a third month, led by road projects.

While the construction spending numbers were strong, market participants seemed focused on the more closely watched ISM data.

Treasuries reversed from modest selling to further buying, sending the benchmark bond 10-year YIELD ($TNX.X) 3.676% lower, and at levels not seen since late September and early October.

The Dow Industrials (INDU) 7,886 -0.07% are now down just 6- points, but well off their session best levels of 7,981. The more volatile NASDAQ-100 Index (NDX.X) 1,005 -0.44% is holding a session low, after having jumped to a high of 1,023, coming just shy of testing our WEEKLY R1 level of resistance at 1,025.50. Trader's will monitor the resenctly stronger NASDAQ-100 Index (NDX.X) for support at its WEEKLY pivot of 997.50.

The broader S&P 500 Index (SPX.X) 841.23 (unch) gave back an early morning gain of 11-points, but looks to hold above its shorter-term 21-day SMA of 839 for a second-straight session. Something, the SPX has not been able to do since falling below this shorter-term SMA on January 17th at the 900 level.

Jeff Bailey

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