|Business Barometer Index - Level||53.1||51.0 to 54.0||46.2||52.3|
Chicago's PMI sample reports surprising and inexplicable contraction this month, at an index of 46.2 which is far below the Econoday low estimate for 51.0 and April's reading of 52.3. The index's five components all came in under 50 including very sharp contraction for new orders, production and also employment which is at its lowest level since April 2013. No longer in contraction, however, are raw material prices where higher fuel costs are a likely suspect.
Conclusions based on this report can sometimes be uncertain given its very volatile history. But this report is a red flag of sorts, coming at a time when expectations are looking for significant economic strength, not weakness. This report tracks all sectors of the Chicago economy.
Market Consensus Before Announcement
The Chicago PMI was depressed during the winter months but shot back solidly in April to 53.3, roughly where forecasters see it holding in May, at 53.1. This report is often very volatile, including in April when new orders swung back into the plus-50 column with the largest monthly swing in more than 30 years.
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.