US manufacturing sector bouncing off the bottom

US's factory activity appears to have stabilized after slowing sharply at the start of the year. However, it is premature to expect a significant rebound. Regional Fed surveys released so far this month paint a very mixed picture. The Empire and Richmond canvasses improvedmodestly in May, while the Philly and Dallas Fed surveys showed further deterioration in manufacturing activity. 

Given the earlier pickup in the orders component of the ISM survey and the reported improvement in capital equipment orders for April, a modest (0.9pt) improvement in the ISM diffusion index is expected. Societe Generale forecasts ISM index 52.4 would mark the highest level since February. By itself, this is in line with GDP growth of 2.6%. 

"However, the service sector is running at above-normal speeds and should be offsetting much of the manufacturing weakness. Combining the manufacturing ISM forecast with the 56.7 projection for the nonmanufacturing index would put the composite ISM index at 56.2 in May, consistent with GDP growth of 3.3%", says Societe Generale.