|Business Barometer Index - Level||49.2||48.0 to 51.5||56.2||48.7|
Volatility is not that unusual for the Chicago PMI which surged 7.5 points from September and 6.0 points over consensus to a 56.2 level that points to sudden acceleration and solid growth this month for the whole of the Chicago economy. New orders and especially production are showing strength with both at their best levels of the year. The production reading, in fact, surged nearly 20 points in a reminder of how volatile this series can be.
Inventories are also up sharply, suggesting that Chicago businesses may be ramping up for stronger output going into the holidays. Hiring fell back to neutral following three months of gains and, in another negative, order backlogs are down for an eighth straight month. And for a third straight month, prices are in contraction.
Advance indications on the October economy are mixed with a sweep of regional Fed surveys pointing to another month of contraction for the factory sector but other readings, including this one, mixed to upbeat. Still, the volatility of this report should limit its impact on the month's outlook.
Market Consensus Before Announcement
The Chicago PMI is a one of a kind, a regional report that tracks the whole scope of the economy, at least for Chicago. Big swings are the norm for this closely watched report but one isn't expected for October with the consensus calling for marginal monthly contraction, at 49.2 for what would be a small 1/2 point gain.
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.