Moody's, Fitch Affirm Rating; Issue Warning If Economy Weakens

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U.S. financial markets began dipping yesterday after the Institute for Supply Management (ISM) issued its monthly index, showing a tepid manufacturing sector. Economists consider the index an important indicator in predicting the manufacturing portion of the economy, said Phil Orlando, chief equity strategist with Federated Investors.

"The ISM number was a game changer because we thought the economy would start to firm in the later summer months, especially as Japan starts to come back," Orlando said.

The ISM index for July fell to 50.9 , which was below the consensus figure of 54.5 and June's actual number of 55.3.

"It was significantly below what the consensus expectation was, even though the street thought the number would be soft," Orlando said.

McCain said the report does not eliminate the possibility of an anticipated improvement in the economy in the third quarter.

"It be more back ended loaded in third quarter than anticipated," McCain said. "We've seen some recent retail numbers that show consumer spending may be improving, which shows more potential improvement for GDP growth. We think it's too early to conclude improvement is not coming."

Monday's manufacturing report followed a weaker-than-expected gross domestic product figure last week. On Friday, the U.S. government said the economy expanded at a disappointing 1.3 percent annual rate in the second quarter after barely growing during the first quarter.

"To be as weak as it was, it gave economists pause in conjunction with the weak economic figure on Friday," Orlando said. "It's just another piece of the mosaic."

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