US: Chicago PMI

Tue Jun 30 08:45:00 CDT 2015

Consensus Consensus Range Actual Previous
Business Barometer Index - Level 50.6 48.5 to 55.0 49.4 46.2

Chicago's PMI sample remains surprisingly depressed, at a June index of 49.4 which is noticeably below the Econoday consensus for 50.6. June is the 4th contractionary reading (sub-50) of the last five months.

The sample's employment is the lowest since November 2009 with backlog orders the lowest since September 2009. Note that weakness in backlogs is a clear negative for future employment. Production, like the main index, is in contraction for the 4th time in five months.

But leading the positive side of the report are new orders which are now back above 50. And in a special question, respondents are cautiously optimistic that new orders will begin to pick up in the third quarter.

More orders are exactly what this sample needs, a sample that tracks all areas of the Chicago economy.

Market Consensus Before Announcement
At what was a much lower-than-expected 46.2, the Chicago PMI sent out an errant red flag in May, signaling trouble for what was mostly a strong month for the economy. A bounce back to slight growth at 50.6 is expected for June.

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.