Regional reports from around the country have indicated that manufacturing conditions were improving in August, leading analysts to believe that today’s key economic release, the ISM manufacturing index, will boast a positive number for the first time since January 2008. In the past week, equity markets have been treading softly even as good data piles in, as investors continue to believe that the 52% rise in the S&P 500 since early March was overdone.

Ninety minutes before the opening bell, US indexes are down between 0.5% and 0.6%. Compared to global markets, US equities are somewhere in between the gains in Asia and the sell-off in Europe.

In Asia, Japan’s Nikkei ticked up 0.4% and Hong Kong’s Hang Seng climbed 0.8%, while China’s Shanghai inched up 0.5% after shedding nearly 7% on Monday. European markets are heading in the opposite direction, with the German DAX recently down 1.6%, France’s CAC trading 0.9% lower, and London’s FTSE 100 down 1.3%.

In addition to nationwide manufacturing conditions, two housing reports will also be released this morning. Details after the jump.

10:00 ― Broad advances caused the ISM manufacturing index to spurt ahead 4.1 points in July, leading many to believe the downturn in manufacturing had come to a close. A month later, that sentiment continues to hold, as multiple surveys beat consensus forecasts and hit growth mode this month. Reports from New York, Philadelphia, Richmond, Chicago, Dallas, and Milwaukee all beat expectations in August, pushing forecasters to believe that the ISM survey will hit 50.5, or higher, marking the first sign of growth in 19 months.

“The improvement in the ISM is an important validation of our view that the inventory liquidation has largely run its course, and in turn manufacturing production is poised to stabilize,” said Joseph LaVorgna, chief US economist at Deutsche Bank.

Analysts from IHS Global Insight added: “With strength in the East and a major rebound in motor vehicle production, the overall index should move above 50. Weak backlogs, still high inventories, and dismal job prospects should be the major drags on the total, but not enough to offset the recovery in orders and production.”

10:00 ―  Pending Home Sales Index will more than likely see their 6th straight gain in July, setting the state for further recovery in existing home sales. Last month’s 3.6% gain isn’t expected to be matched, but the consensus forecast for a 1.3% advance will still be good news, as it builds upon what’s already been a 16.6% recovery.

“There are no direct short-term leading indicators of the pending sales index, but adopting the principle that the trend is our friend and the noise is unpredictable, we look for the index to rise about 3% in July,” said Ian Shepherdson, chief US economist at HFE.

Such a boost would put the annual pace of sales at 5.5 million ― the fastest rate of sales in two years. 

As for markets, the combination of a housing recovery with growth in manufacturing could really boost spirits. “An improving housing market is like a stress reliever for the financials,” said Robert Kavcic from BMO Capital Markets.

10:00 ― As if those two reports released at the same time weren’t enough, markets will be also be hit with July’s Construction Spending report. With single-family housing starts rising 1.7% in July, construction spending should be climbing in the residential area, but stress in the non-residential area could keep the overall index flat, following an unexpected 0.3% gain in June.

Analysts from IHS Global Insight see spending on single-family homes rising more than 3% in July, which would more offset “another plunge in multi-family spending and a fourth straight monthly drop in non-residential construction.” More optimistic than the consensus, they look for an overall gain of 0.5%.

HFE’s Shepherdson is less optimistic, writing that the downward trend is reasserting itself after a modest rebound last month. “The private non-residential sector is now weakening again, and we think there is much worse to come,” he said.

Markets might just remain sour about recovery if that’s the case, even if the ISM boosts spirits.

Treasury Auctions:

1:00 ― 4-Week Bills.

US Treasuries are slightly stronger today, with the 10-year yield two basis points lower at 3.40%. Just eight days ago they were trading 20 basis points higher.