US: Chicago PMI

Fri Sep 29 08:45:00 CDT 2017

Consensus Consensus Range Actual Previous
Business Barometer Index - Level 58.5 55.0 to 60.0 65.2 58.9

There are no hurricanes in Chicago where the PMI, which has been very strong all year, absolutely surged in September to 65.2 for a 6.7 point gain that puts the index at its highest level in 29 years. Yet when smoothing this often very volatile index out, the average for the third quarter is actually down a tenth from the second quarter at what is a still forminable diffusion score of 61.0.

Readings moved higher but it's a surge in backlog orders, also hitting a 29-year high, that leads September's report. High backlogs point to the need for hiring which has been very weak in this sample but did move back into positive ground in the month. Cost pressures, likely the result of Hurricane Harvey's impact on the energy sector, are another feature of today's report, hitting a 6-year high.

Outside of prices, the report's sample isn't reporting any direct hurricane effects though nearly 40 percent expect delivery times to begin lengthening at least slightly. This report, in contrast to this morning's personal income and spending data, is yet another reminder that private and regional surveys, where sample sizes are small and responses voluntary, have been far outpacing hard economic data at the national level.

Market Consensus Before Announcement
The Chicago PMI has been one of the highest flyers of any regional reports this year, posting consistent readings near or over 60. For September, forecasters are calling for 58.5 vs August's 58.9. This report tracks both the non-manufacturing and 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.