US: Chicago PMI

Wed Feb 28 08:45:00 CST 2018

Consensus Consensus Range Actual Previous
Business Barometer Index - Level 65.0 62.0 to 66.8 61.9 65.7

Deceleration at a still blistering pace is February's result for the Chicago PMI which remains above 60 at 61.9. Yet the result is below Econoday's low estimate and indicates the least rate of monthly growth in six months.

New orders are also the lowest in six months but, like the headline composite, remain very strong with backlogs, however, at a 10-month low. These order readings do hint at slowing in the months ahead for this report including for production where February growth hit a 5-month low.

Hiring is likewise slowing but from January's 6-month high which again underscores the fundamental strength of this sample. Pressures on delivery times eased and inventories were worked down, again both signs of moderation. Upward pressures on input costs also eased despite what the sample reports are higher tariffs on imported steel.

The volatility of this report, one that covers both the manufacturing and non-manufacturing sectors of the Chicago economy, limits its usefulness as a predictor of other data. But the takeaway is strength, though easing strength.

Market Consensus Before Announcement
The sample for the Chicago PMI report has been reporting the greatest strength of any regional or private survey. Led by a 6-year high for employment, the Chicago PMI easily beat Econoday consensus back in January at 65.7 with February's consensus at 65.0.

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.