A Lump of Coal!

Looks like investors received another lump of coal in their stockings with today's release of the Institute of Supply Management's monthly ISM index. This measure of manufacturing activity hit a 2006 high in the spring and has been drifting lower ever since. Today's report that November's number was 49.5 has particular significance for the market when you remember that a reading below 50 is indicative of contracting manufacturing activity.

Not surprisingly, the stock market has begun to slide on concerns that economic growth may slip further than expected and as a result, earnings may fall short of expectations next year.

Before you panic and sell everything, this is the first ISM index number below 50 in a couple of years. Since then the economy has grown strongly. And, this index reflects the manufacturing sector of the economy which is an increasingly less important factor in overall growth. So lets wait for perhaps another month or two of reports below 50 before we panic!

Oh, there's a silver lining to this report. Treasury bonds have strengthened today, pushing interest rates down a bit more. It's going to be tough for the Fed to raise in the face of evidence of a slowing economy and an inverted yield curve.

We believe next week's employment report may be of more help to investors' understanding of the current and future economic picture than to today's ISM.