US: Chicago PMI

Mon Apr 30 08:45:00 CDT 2018

Consensus Consensus Range Actual Previous
Business Barometer Index - Level 57.8 55.5 to 60.0 57.6 57.4

Increasing indications of capacity stress now include the prices paid index of the Chicago PMI report which moved over 70 in April for a 22.8 percent year-on-year rise. This is a 7-1/2 year high and reflects, in large part, rising steel prices. The headline index came in at 57.6 in the April report which is a strong rate of growth but down from last year's late run in the mid-60s. New orders have slowed this month while backlogs, for a fourth straight month, posted a decline.

The slowing in orders is probably welcome for this sample where signs of capacity stress, beyond prices, also include delivery times which continue to lengthen and where tie-ups in steel shipments are a factor. Steel is not moving into inventories, at least yet as inventories posted their lowest reading since August. Other indications in today's report include a 6-month low for employment.

Market Consensus Before Announcement
Strong growth but only modest acceleration is the consensus for the Chicago PMI, to a consensus 57.8 in April vs 57.4 in March. Capacity stress has been a question for this sample as delivery times have been lengthening and skilled workers hard to find.

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.