Economic data weak but stocks continue to climb

Although the ISM's non-manufacturing report turned out better than expected, yesterday's economic data on the whole pointed to a very weak US economy. Bloomberg reports:

The Institute for Supply Management’s index of non- manufacturing businesses was 40.6 for December, a higher-than- forecast reading that was still the second-worst on record. The National Association of Realtors index of pending home resales fell 4 percent in November, and the Commerce Department said orders at U.S. factories slumped for a fourth month.

This followed Monday's data showing that US auto sales plunged 36 percent in December while construction spending fell 0.6 percent in November.

Europe's economy is also looking weak. From Bloomberg:

Europe’s manufacturing and service industries contracted for a seventh month in December as the economy slid deeper into a recession.

A composite index of both industries dropped to 38.2, the lowest since the survey began in 1998, from 38.9 in November...

Markit’s manufacturing index fell to 33.9 last month from 35.6 in November, while the services gauge declined to 42.1 from 42.5...

At least inflation in the euro area is moderating quickly, slowing to 1.6 percent in December from 2.1 percent in November.

Meanwhile, there were also gloomy data coming out from the UK. Bloomberg reports:

U.K. services from restaurants to airlines shrank at close to the fastest pace in at least a dozen years and house prices fell by the most since 1991, suggesting that the recession is intensifying.

An index based on a survey of about 700 service companies by the Chartered Institute of Purchasing and Supply was at 40.2 in December, compared with November’s 40.1, which was the lowest since the gauge began in 1996, Markit said today. The average price of a home fell an annual 15.9 percent in December, Nationwide Building Society said in a separate report.

Consumer confidence dropped to the lowest since at least 2004 in December as rising unemployment rattled shoppers, Nationwide also said today...

Other CIPS surveys for last month also show that the contraction is sharpening. The index for manufacturing was at 34.9 and the construction index dropped to 29.3, the lowest since records began in 1997.

However, investors are looking past the gloomy economic data. Bloomberg reports yesterday's stock market action.

U.S. stocks gained, recovering yesterday’s losses, on speculation President-elect Barack Obama’s $775 billion package of tax cuts and government spending will revive the economy...

The Standard & Poor’s 500 Index rose 0.8 percent to 934.70, rebounding from yesterday’s 0.5 percent drop and climbing to the highest since Nov. 5. The index is up 3.5 percent in 2009 after sliding 38 percent in 2008, its worst yearly loss since 1937. The Dow Jones Industrial Average increased 62.21 points, or 0.7 percent, to 9,015.1. The Russell 2000 Index added 1.9 percent...

Europe’s Dow Jones Stoxx 600 Index rose for a sixth day, adding 2 percent as forecasts from U.K. retailers reassured investors. More than five shares rose for every four that fell in the MSCI Asia Pacific Index, which slipped 0.2 percent.