CORRECTED – PREVIEW-ISMs to show impact of euro zone woes on US

(Corrects second paragraph to say Europe’s troubles are
slowing the U.S. economy)

* What: Institute for Supply Management manufacturing
index

* When: Tuesday, June 1, at 10 a.m. (1400 GMT)

* Economists’ median forecast: 59.7

* What: ISM non-manufacturing index

* When: Thursday, June 3, 10 a.m. (1400 GMT)

* Economists’ median forecast: 55.6

FACTORS TO WATCH

The ISM surveys mark the first wave of May data that could
reveal the impact of Europe’s debt crisis on the U.S. economy
and for that reason will be of particular interest to
investors.

If Europe’s troubles are slowing down the U.S. economy, the
first place that would likely show up is in the manufacturing
ISM’s new orders component index.

“There is a presumption that all the turmoil in Europe and
the global financial markets is going to have a negative impact
on the U.S. economy,” said Stephen Stanley, chief economist at
Pierpont Securities in Stamford Connecticut.

“If the data hold up pretty well, it’s going to be a bit of
a challenge to the view that the U.S. economy is going to
falter but probably won’t convince the most sceptical of
people.”

In addition, investors will also focus on the employment
component of the two indexes as they try to assess the strength
of underlying employment trends ahead of May’s payrolls report
due out at the end of the week.

MARKET REACTION

With investors focused on Europe, even a strong number
can’t guarantee a positive reaction on Wall Street, while a bad
number would almost certainly send stocks lower as investors
worry about a slowdown in the U.S. economy and the effect that
has on corporations.

The U.S. dollar has trended higher against the euro for
months now. It has been helped recently as Europe’s woes pushed
investors toward the relative safety of the currency.

A strong ISM number could ease those fears and lead to a
fall in the dollar as investors moved back into riskier assets.

In neutral conditions, the government bond market would
likely soften on a stronger number on the view that stronger
growth could increase inflation.

REUTERS FORECAST

Economists expect that May marked the tenth straight month
of expansion for the U.S. manufacturing sector, but at a slower
pace than last month, and a fifth straight month of growth for
the services sector.

The median Reuters forecast of 18 economists for the
manufacturing ISM is 59.7, down from 60.4 in April. The median
forecast for the non-manufacturing ISM is 55.6 in May, just up
from 55.4 in April. A reading above 50 indicates expansion.

The manufacturing sector has been growing steadily since
August. The services sector, which accounts for a far larger
share of U.S. employment, has been slower to take off.

Economists have cited still-sluggish job growth and weak
consumer spending as reasons for the services sector’s slower
advance.

The economy added 290,000 jobs in April, its fastest growth
in four years, while a Reuters poll predicts it likely added
another 425,000 in May.

Stock Market Trading
(Reporting by Edward Krudy; Editing by Kenneth Barry)

CORRECTED – PREVIEW-ISMs to show impact of euro zone woes on US