US: Chicago PMI

Thu May 31 08:45:00 CDT 2018

Consensus Consensus Range Actual Previous
Business Barometer Index - Level 58.4 56.6 to 59.4 62.7 57.6

The Chicago PMI, jumping 5.1 points, is quickly back in the 60s column at 62.7 in May. New orders, which had been slowing, are re-accelerating with backlog orders likewise rebounding. Production picked up in the month as did employment which, however, continues to be held back by lack of available labor. And there are plenty of signs of capacity stress in this sample with delivery delays the longest of the year and with the rise in input costs holding at a 7-year high. All the small-sample indications for May, including this one, have been strong and point to a solid month of growth for the economy.

Market Consensus Before Announcement
Easing in orders helped pull down the Chicago PMI to 57.6 in April in what, especially for this sample, was probably a blessing given deepening signs of capacity stress that included a 7-1/2 year high for input costs. Scarcity of steel, following tariffs, was a tangible factor for this sample in April. For May's result, forecasters see the index rising to 58.4.

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 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.