US: Chicago PMI

December 28, 2017 09:45 EST

Consensus Consensus Range Actual Previous
Business Barometer Index - Level 62.5 61.0 to 65.4 67.6 63.9

Chicago's PMI sample ends an enormously strong year at a 6-1/2 year high, rising 3.7 points in December to 67.6. Production is at a 34-year high while new orders are at a less spectacular but still very striking 3-1/2 year high. One area not improving, however, is employment which is losing ground as members of the sample are having difficulty finding candidates. Lack of employment growth is of special note and has been cited by the Federal Reserve's Beige Book as a risk to continued business expansion. Signs of overheating are evident in this report which includes respondents from Chicago's manufacturing and non-manufacturing sectors.

Market Consensus Before Announcement
Growth has been steady and robust all year for the Chicago PMI which, at 63.9 in November, has been over 60 for the last three reports. Overheating is palpable in this report with a lack of available workers keeping down employment and limiting business expansion. For December, forecasters are calling for another 60-plus result at a consensus 62.5. This report tracks both the manufacturing and non-manufacturing sectors of the Chicago-area economy.

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.