The Institute for Supply Management's manufacturing survey index out Monday fell to 54.8 in April, a further deceleration after the gauge of factory activity hit a two-and-a-half year peak of 57.7 in February.
Wall Street economists expected the ISM gauge to dip to 56.0 from 56.5 in March. Readings above 50 signal expansion, while those south of 50 suggest contraction.
The Dow Jones industrial average, S&P 500 index and Nasdaq composite opened higher on the stock market today, but the Dow weakened before the ISM report, and all of the major averages lost ground after the softer-than-expected data. Treasury yields were little changed.
The new orders index slid to 57.5 from 64.5, while the current production gauge rose to 58.6 from 57.6. The employment gauge dropped to 52.0 from March's six-year high of 58.9. The gauge of order backlogs was roughly stable at 57.0.
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The still-solid readings on manufacturing activity come despite some question marks for the auto sector. General Motors (GM), Ford (F) and other automakers are due to report April auto sales on Tuesday. Ward's Auto expects that sales rebounded to a 17.2 million annual pace from March's weaker-than-expected 16.5 million level. GM, Ford and Fiat Chrysler (FCAU) may be in a better position than foreign automakers, given the Big 3's emphasis on popular SUVs and pickup trucks.
GM, Ford and Fiat Chrysler reported earnings last week.
The ISM report starts off a batch of key economic reports this week, including Friday's jobs report. The Federal Reserve isn't expected to hike rates when it meets Tuesday and Wednesday, but the data will influence whether policymakers raise rates in June.
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Markets are pricing in just one more hike this year, but the Fed has signaled that it will raise rates twice and begin to scale back its asset holdings, an effective tightening, by the end of 2017 if the economy performs as expected.
The 10-year Treasury yield has pulled back amid international friction and doubts about President Trump's ability to get major tax and infrastructure spending through Congress on a timely basis. That's been a negative for banks, which can reap bigger profits from faster growth, higher rates and a steeper yield curve. Shares of Bank of America (BAC), Wells Fargo (WFC) and Dow component Goldman Sachs (GS) all remained stuck below their 50-day moving averages last week. BofA, Wells Fargo and Goldman Sachs edged higher Monday morning.
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