US: Chicago PMI

Wed Jan 31 08:45:00 CST 2018

Consensus Consensus Range Actual Previous Revised
Business Barometer Index - Level 64.0 60.0 to 67.7 65.7 67.6 67.8

Chicago PMI's sample starts off 2018 where it left off 2017, at a rare rate of growth. January's 65.7 easily beats Econoday's consensus for 64.0 with strength led by a 6-year high for employment and slowing in delivery times. Both of these factors are consistent with capacity stress which has been apparent in this survey. An easing back in order acceleration during January and a draw in backlogs are probably positives for the month. Production also slowed. Unsustainable growth has been the signal from the Chicago report where readings, in more than 50 years of data, have been at historic highs.

Market Consensus Before Announcement
Enormously strong growth, well in excess of the national economy, was last year's results for the Chicago PMI which surged to end 2017 at a December score of 67.8 (revised 2 tenths higher from the initial reading). This index doesn't have much headroom left as forecasters are calling for easing in January to what is still a very robust 64.0. Readings from this sample, which track both manufacturing and non-manufacturing firms in the Chicago economy, are at or near historic highs in data that go back more than 50 years.

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.