US: Chicago PMI

Thu Nov 30 08:45:00 CST 2017

Consensus Consensus Range Actual Previous
Business Barometer Index - Level 63.5 61.0 to 66.5 63.9 66.2

Overall economic growth remains steady at robust levels among Chicago's sample where the PMI, at a slightly higher-than-expected 63.9 in November, has posted its third straight plus 60 score. This is the best streak for this index in 3-1/2 years.

New orders slowed this month but remain very strong while backlogs, after hitting a 43-year high in October, also eased but also remain strong. Delivery delays, tied to the hurricane season, have been clearing up in most reports but not this one where deliveries slowed the most in 13 years. This is symptom of overheating that is likely tied to holiday congestion in the supply chain and underscores the strength of demand. Inventories rose and input costs remain elevated, also consistent with supply chain constraints.

Employment has not been strong in this report due to the lack of available workers, another symptom of overheating also evident in yesterday's Beige Book. The regional reports have been strong all year with some, at times, running too hot. This survey tracks both the manufacturing and non-manufacturing sectors of the Chicago economy.

Market Consensus Before Announcement
No regional report has been stronger than the Chicago PMI which, at 66.2 and 65.2 in October and September, appears to be at risk of overheating. The one weakness in October was hiring which was down, not because of demand, but due to a lack of available labor to employ. For November, forecasters are calling for only limited slowing, to a still 60-plus consensus at 63.5.

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.