Factory Activity Stalled In ISM's June Report; Details Signal Growth; Index Still Below Breakeven; Headline figure a bit shy, but economists point to new orders, output data.(A)

Byline: CHRISTINA WISE

Manufacturing activity failed to turn positive in June, according to Tuesday's report from the Institute of Supply Management. But upticks in orders and production offered hope for the future.

The ISM Purchasing Managers' Index edged up to 49.8 from May's 49.4. That's just below the 50 mark that separates factory growth or decline. Economists expected a reading of 51, but it was still the best since February.

Stocks initially sold off on the disappointing headline figure. But after digesting the underlying data, they rallied for decent gains.

"Today's ISM report was a little bit different from how the market needed to see it," said Mat Johnson, chief economist with Quantit Economic Group in San Francisco. "It portrays the manufacturing sector slowly continuing to get a little bit healthier."

The new orders index rose to 52.2 in June from 51.9 in May. Production increased to 52.9. It was the second month of rising orders and the third for output.

It "really portrays the manufacturing sector as having worked out many of the kinks," Johnson said. "They're seeing what they need to see in terms of new orders and production."