NEWS AND COMMENTARY June 1, 2000 U.S. May NAPM Index Falls to 53.2 as Factory Expansion Slows By Noam Neusner, Bloomberg Market Bounces...on Signs of Slowdown?...Weiss comments WASHINGTON - U.S. manufacturing expanded in May at the slowest pace in more than a year as the pace of production and growth in new orders slowed, an industry survey of executives showed. A gauge of prices paid for raw materials declined to its lowest point in eight months. The National Association of Purchasing Management said its monthly factory index fell to 53.2 in May from 54.9 in April. May's reading is the lowest since April 1999, when the index was 52.7. Manufacturing "was accelerating very rapidly a year ago, but is slowing now," said Neal Soss, chief economist at Credit Suisse First Boston in New York, before the report. With a reading above 50, the NAPM report still suggests an expansion. The index has been at 50 or higher for 16 months, as U.S. factories have busied themselves supplying both overseas customers and U.S. consumers. A more pressing question is whether manufacturers are paying more for raw materials -- a sign that expanded activity is leading to shortages and higher costs that could trickle down to consumer prices. The NAPM prices-paid index in May fell to 65.8 from 76 in April. May's reading is the lowest since September, when it was 65.4. In March, the prices-paid index rose to 79.8, the highest in five years. Treasury securities and stocks extended gains that first came after the Labor Department reported that first-time jobless claims rose 1,000 last week to 286,000. That followed an increase of 7,000 to 285,000 the previous week. So far this year, however, initial claims have averaged 278,000 a week, down from the average of 298,000 for all of last year. The NAPM report is yet another in a long line of economic indicators showing that the economy is beginning to slow. However, as with most of the numbers out this month, it's not low enough to stop the Fed from bumping rates again. Remember, an index over 50 still indicates expansion. And, we've said it before, one month of data will not make the Fed jump off course. The markets are reacting wildly to today's news - but why? This is bad news for the bulls - the economy is slowing down and company earnings will begin to dwindle. Attempts to rally the market will continue to fizzle as they have over the past few days.

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