Chicago PMI & ISM Preview: Factory Activity Lowest Since July 2009

December 31, 2015
The Chicago Purchasing Managers' Index FELL by 5.8 points to 42.9% in December, below market expectations for an increase to 50.0%. This was the lowest reading since July 2009. The report noted, “Order Backlogs provided a particular drag in December, registering a 17.2 point fall to 29.4. Backlogs have now been in contraction for 11 consecutive months this year and stood at the lowest since May 2009. The double digit move in Backlogs is a rare occurrence and the depth of the decline has only been surpassed by a 17.4 drop in March 1951. There was also ongoing weakness in New Orders, which contracted at a faster pace, to the lowest level since May 2009. The fall in Production was more moderate but still put it back into contraction for the sixth time this year. The Employment component, which had recovered in recent months, dropped back below the 50 neutral mark in December, leaving it at the lowest since July. The only positive this month came from a special question with 55.1% of the panel expecting demand to be stronger in 2016 compared with 14.3% who thought it would be lower. 30.6% of respondents thought demand would be unchanged. The only component of the barometer to increase was Supplier Deliveries, which expanded 4.8 points to 56.5, with longer delivery times more likely due to issues with logistics than demand. Prices Paid increased sharply on the month in December, although it remained in contraction.” On an ISM weighted basis Empire State rose by 3.6%, Richmond climbed by 7.9%, Philly was unchanged, Kansas City fell by -9.7% and Dallas fell by -3.1%. Bottom Line: Manufacturing activity in the Chicago region contracted sharply in December to 42.9%, the lowest reading since July 2009. So far the score for the regional surveys is 3 to 2 in favor of a weaker activity (this, Kansas City and Dallas over Empire and Richmond), suggesting a decline of about -4.0% to 46.6% is possible for ISM Manufacturing, modestly lower than the current market consensus of an increase to 49.0%.
Article by contingentmacro