US: Chicago PMI


Mon Nov 30 08:45:00 CST 2015

Consensus Consensus Range Actual Previous
Business Barometer Index - Level 54.0 52.8 to 56.5 48.7 56.2

Highlights
Volatility is what to expect from the Chicago PMI which, at 48.7, is back in contraction in November after surging into solid expansion at 56.2 in October. Up and down and up and down is the pattern with prior readings at 48.7 in September (the same as November) and 54.4 in August.

New orders are down sharply and are back in contraction while backlog orders are in a 10th month of contraction. Production soared nearly 20 points in October but reversed most of the gain in November. Despite November's weakness, employment is up slightly. Prices paid is in contraction for a fourth straight month.

Though this report points to November weakness for the whole of the Chicago economy, the volatility of the report should limit its impact on the month's outlook.

Market Consensus Before Announcement
Volatility is the name of the game for the Chicago PMI which has been swinging back and forth from strength to contraction. The Econoday forecast calls for slowing in the November report, to 54.0 from October's outsized 56.2 when components for new orders and production posted 2015 bests. Production, in fact, surged nearly 20 points in October in a reminder of how volatile this series can be.

Definition
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.



Description
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.