Today the Purchasing Management Association of Chicago released the results of its July survey of the status of Midwest manufacturing activity. From June to July, the value of the association's composite Purchasing Managers Index fell from 53.3 to 51.2. This was bullish for bonds. Analysts had been expecting the change to go in the other direction. They predicted a reading of 55.4.

The prices-paid index, an inflation indicator, was unchanged at 53.0, and the employment index dropped from 48.6 to 43.2 -- two more encouraging signals for the bond market.

Most months, if something else is going on, I won't even report on the Chicago association's news release. This is because the more-comprehensive National Association of Purchasing Management release always follows close on the heels of the Chicago report. The NAPM report is scheduled for tomorrow. Today, however, the Chicago release was the only economic news to come out.

The slowing in employment and the PMI, and the stability in prices paid, were indicative of subdued economic growth and, for today, convinced bond traders that inflation was under control and that the FOMC might not raise short-term rates at its August 20 meeting. At the end of the trading day, the 30-year T-bond had risen by 22/32, with the yield dropping from 7.04 to 6.97. The DJIA triggered program trading curbs at one point this afternoon and wound up with a gain of nearly 47 points.

How long can the euphoria last? We're only half way home. Tomorrow we'll get the NAPM report and the first cut at the GDP for the second quarter. Then, on Friday, comes the dreaded July employment report, and releases of June data on factory orders, personal income, and consumer expenditures. What a week!!