US: Chicago PMI

Thu Apr 30 08:45:00 CDT 2015

Consensus Consensus Range Actual Previous
Business Barometer Index - Level 50.0 45.1 to 52.0 52.3 46.3

Always volatile, the Chicago PMI jumped back into the expansion column in April, at 52.3 vs a badly depressed 46.3 in March. Strength in April is centered where it is best centered, in new orders which surged 12.8 points to 55.1 for the highest reading since January. This is the largest month-to-month increase for this reading in more than 30 years. Backlog orders are also up as are production and employment. The inflation gauge in this report, as it is many reports, is at multi-year lows.

This report is often very jumpy but it does fit in with Federal Reserve expectations that first-quarter slowing in the economy was due to one-time factors and that the second quarter will see a return to underlying growth rates. This report offers a full view of economic activity, covering all segments of the Chicago economy.

Market Consensus Before Announcement
The Chicago PMI posted 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 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.