Economic Round Up -- ISM Manufacturing Data Raises Stagflation Fears, Monday, June 02, 2008 1:04:36 PM

A busy week of economic news was kicked off on Monday with an ISM report showing U.S. factory activity contracted in May for the fourth consecutive month and the pace of price growth accelerated to its highest in four years.

The ISM said its index of activity in the manufacturing sector rose to 49.6 in May from 48.6 in April, although a reading below 50 indicates a contraction in the sector. Economists had been expecting the index to edge down to about 48.5.

The unexpected increase by the index was partly due to a rebound in production, with the production index jumping to 51.2 in May from 49.1 in April. The increase lifted the production index above the key 50 level.

However, concerns about stagflation were raised when the ISM said that the pace of price growth continued to accelerate in May, with the prices index jumping to 87.0 from 84.5 in the previous month.

The ISM is due to provide some additional economic data on Wednesday with the release of its report on activity in the service sector. Economists expect the index of activity in the service sector to edge down to 51.0 in May from 52.0 in April.

Also Monday morning, the Department of Commerce released its report on construction spending in the month of April, showing that construction spending decreased by a little less than economists had been anticipating.

The report showed that construction spending fell 0.4 percent in April following a revised 0.6 percent decrease in March. Economists had expected spending to fall 0.6 percent compared to the 1.1 percent decrease originally reported for the previous month.

North of the border, the Conference Board of Canada said that Canadian consumer confidence fell to its lowest point since 2001. The board said its consumer confidence index dropped seven points to 85.8 in May.

Across the Atlantic, Purchasing Managers` Index data for the manufacturing sector of various European economies dominated the scene.

Euro zone`s Purchasing Managers` Index for manufacturing sector declined to the lowest level since August 2005. The Royal Bank of Scotland and NTC Economics revealed that Eurozone`s PMI for manufacturing sector fell to 50.6 in May from 50.7 in April. However, the reading stood above the flash reading of 50.5. The May reading was the lowest since August 2005.

Meanwhile, the number of mortgage approved for house purchases in the UK stood at 58,000 in April, the Bank of England reported Monday. Mortgage approvals fell from March`s 63,000 and 65,000 expected by economists. Net lending secured on dwelling rose GBP6.4 billion compared with GBP6.7 billion in the prior month.