INSTANT VIEW: U.S. ISM growth slows; pending home sales rise

NEW YORK (Reuters) - The U.S. manufacturing sector grew in November for the fourth straight month but at a slower rate than expected, according to an industry report released on Tuesday.

Pending sales of previously owned U.S. homes rose unexpectedly to their highest level in 3-1/2 years in October, a survey showed on Tuesday, suggesting the housing market recovery was gaining steam.

KEY POINTS:

ISM * The Institute for Supply Management said its index of national factory activity decelerated to 53.6 in November from 55.7 in October. The median forecast of 70 economists surveyed by Reuters was for a reading of 55.0 in November. * Readings above 50 indicate expansion in the manufacturing sector, a number below 50 shows contraction.

PENDING HOME SALES * The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in October, rose 3.7 percent to 114.1, rising for a ninth straight month. * This is the longest streak of gains since the series started in 2001. * Analysts polled by Reuters had forecast pending home sales, which lead existing home sales by one to two months, falling 0.8 percent in October after rising to 110 in September. * The Pending Homes Sales Index surged a record 31.8 percent in October from its year-ago period.

COMMENTS:

ZACH PANDL, ECONOMIST, NOMURA SECURITIES INTERNATIONAL, NEW YORK:

"The data is slightly weaker than expected, although there are some bright spots so I wouldn't interpret it too negatively.

"ISM declined more than expected but is still above 50 suggesting growth in the manufacturing sector. This is a very typical pattern after recession. You have a very quick jump back to growth and then a partial retracement after that, with the manufacturing sector still growing. That seems like the pattern we're seeing here. The decline is marginally larger than we had anticipated.

"The pending home sales is quite encouraging. You still have sales momentum as late as October, getting close to the originally scheduled expiration of the first time home buyer tax credit, so we really need to see November and December data to see how home sales are holding up.

"There's probably a little bit more momentum than we had thought so that's a good sign for the housing market recovery.

"In terms of GDP impact the only number that directly feeds in is construction spending data and that was a net negative for GDP so we probably will be taking down our GDP estimate by a very small amount, 1 or 2 tenths (of a percentage point) but still close to 3 percent growth in the fourth quarter."

ANDREW BEKOFF, CHIEF INVESTMENT OFFICER, FAMILY OFFICE GROUP, NEW YORK:

"The ISM manufacturing for November came in at 53.6 a little weaker than the 55.0 expected. The reading above 50 shows manufacturing expanding for the fourth consecutive month. However the ISM prices paid fell to 55.0 from 65.0 and lower than the estimate of 65.0 and the weakest reading since July. The recovery remains too shallow at this point to change the trend in the dollar."

CARY LEAHEY, SENIOR MANAGING DIRECTOR, DECISION ECONOMICS, NEW YORK:

"The numbers are pretty mixed. First off on the ISM, which may be the more important of the series, the number remains well above 50 even though it is down two points, and I would point out the fact that the employment figure remains above 50 as well, and I would think the market would be impressed with the fact that orders went up another two points. So it is mixed but I wouldn't necessarily say it was a bad outcome.

"The market is interested in home sales because of its linkage to the financial markets storm and also its generalized influence on consumer attitudes, and that number wasn't bad either. I think the worries that homebuilders have been caught offside and that sales were going to get crushed by the pull of the tax credit seems to be somewhat unwarranted. All the major metrics seem to be showing improvement.

"On construction spending... I'm a little surprised that residential activity in dollars went up in October and public construction was weak after a pretty mixed pattern -- I would have thought the public construction would have been up because of the stimulus bill."

STUART HOFFMAN, CHIEF ECONOMIST, PNC FINANCIAL SERVICES GROUP, PITTSBURGH:

"You could see some decent numbers again in November, which was at the time supposed to be last month of home buyer's credit. It's a positive number from one of the sickest sectors in the economy. People are taking advantage as best we can tell of, at the time, what they thought was the deadline of the tax credit and that's helping home sales.

"From the Fed's point of view, manufacturing is expanding, pending homes sales were up as were home sales for the month of October. Bernanke's and the FOMC's story about a slowly and fragile recovering economy is consistent with these numbers. The implication for the Fed is to stay put."

JOHN DOYLE, FOREIGN EXCHANGE STRATEGIST, TEMPUS CONSULTING, WASHINGTON:

"The dollar so far hasn't moved too much, probably because the data released was a mixed bag. Pending home sales came in obviously better than expected, but not as great as last month and that would hurt the dollar. However, the ISM manufacturing came in slightly worse than expected. So the net difference there for the dollar so far has been minimal. I think the data shows the United States is on track for recovery, however it's going to be a protracted recovery."

DAN COOK, SENIOR MARKET ANALYST, IG MARKETS, CHICAGO:

"I'm kind of shocked on pending home sales side. That was definitely much better than expected, especially since we didn't have much direction in October. This is some of the best news I've seen in a while. The fact that the market didn't fall back on itself even without the tax credit is extremely good news and should help drive the markets up today.

"The ISM was a little lower than expected, but the thing to look at is the employment section. It all comes down to employment, because no matter how good the data is, we need jobs. Until we fix that, we can only have short-term positives.

"The construction spending was flat, but these days, flat is better than a decline. However, the report was more negative than positive overall. The revision from last month stung a little bit, and that should offset our being flat this month."

PIERRE ELLIS, SENIOR ECONOMIST, DECISION ECONOMICS, NEW YORK:

"It (ISM) is disappointing, but fundamentally still healthy because there is continued strength in new orders. Some of the setbacks in other key components followed big improvements last month, notably employment where there was a 2.3-point decline following a seven-point jump last month. Similarly, in production, there was a 3.4-point decline following a near eight-point jump last month. All of the key indexes remain solidly above 50. There is still a strong manufacturing recovery going on. Demand side strength is solidly confirmed."

TOM SOWANICK, CHIEF INVESTMENT OFFICER, OMNIVEST GROUP, PRINCETON, NEW JERSEY:

"A bit less-than-expected (ISM) but overall still a strong number when added to the previous monthly levels that were greater than 50. Note that China ISM was also up last night which confirms that we are in a global recovery. Important also to remember that the November equity market rally was triggered by increases in ISM reports from Germany, UK, Japan and the US."

MARKET REACTION: STOCKS: U.S. stock indexes hold gains BONDS: U.S. Treasury debt prices hold losses DOLLAR: U.S. dollar trims gains versus yen