US: Chicago PMI

Tue Mar 31 08:45:00 CDT 2015

Consensus Consensus Range Actual Previous
Business Barometer Index - Level 50.2 49.5 to 53.5 46.3 45.8

Companies sampled in the Chicago PMI report continue to report a lull in activity, at a sub-50 March index of 46.3 following 45.8 in February. On a quarterly basis, the index averaged only 50.5 in the first quarter, down steeply from 61.3 in the fourth quarter for the weakest reading since the third quarter of 2009. Respondents are citing bad weather and fallout from the West Coast port slowdown as temporary negatives, and they see orders picking up during the second quarter. Though the Chicago report, which covers both the manufacturing and non-manufacturing sectors, is often volatile, the last two months of sub-50 readings do confirm other indications of first-quarter weakness for the nation's economy as a whole. The Dow is moving to opening lows following today's report.

Market Consensus Before Announcement
The Chicago PMI for February plunged 13.6 points to a sub-50 level of 45.8, the lowest level since July 2009. The report attributes the plunge to bad weather and effects tied to the West Coast port slowdown. New orders, production and employment all posted double-digit declines. Supplier deliveries slowed which is often a sign of economic strength but in this case reflects delays tied, again, to the weather and port slowdown. This report, which covers both the manufacturing and non-manufacturing sectors, is often very volatile due to small sample size and the latest results, which again were contractionary, don't match up with other anecdotal indications for February that on net are pointing to moderate growth for the month.

The Institute For Supply Management - Chicago compiles a survey and a composite diffusion index of business conditions in the Chicago area. Since October 2011, the survey has been conducted by Market News International. Manufacturing and non-manufacturing firms both are surveyed. Hence, it is not directly comparable to pure manufacturing surveys. Readings above 50 percent indicate an expanding business sector.

Although the report is commonly referred to as the Chicago PMI, the official name of this report is ISM - Chicago. ISM stands for Institute For Supply Management while PMI is shorthand for purchasing managers' index.

Investors should track economic data like the Chicago PMI to understand the economic backdrop for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers a moderate growth environment that will not generate inflationary pressures. The Chicago PMI gives a detailed look at the Chicago region's manufacturing and non-manufacturing sectors. Many market players, focused on manufacturing, don't realize that non-manufacturing activity is covered in this index. On its own, it can be viewed as a regional indicator of general business activity. Some of the Chicago PMI's sub-indexes also provide insight on commodity prices and other clues on inflation. One should be aware that Market News International releases the monthly report to those with private subscriptions three minutes prior to release to the media. This may account for occasional market activity just prior to public release.

This survey is somewhat local in nature, reflecting overall economic activity in the Chicago area. But many see the Chicago PMI as being representative of the overall economy.

Markets focus on the overall index - the Business Barometer which many refer to as the Chicago PMI. The breakeven point for the index is 50. Readings above 50 indicate positive growth while numbers below 50 indicate contraction. The farther the reading is from 50, the more rapid the pace of growth or decline.