Chicago PMI and ISM Preview: Factory Activity Increases Modestly

Bottom Line: Manufacturing activity in the Chicago region expanded modestly in March to 53.6%. The Q1 average is the highest since Q4, 2014. All the regional surveys are in favor of a stronger activity, suggesting a moderate upside print for ISM Manufacturing, compared to the current market consensus of an increase to 50.8%. The Chicago Purchasing Managers' Index ROSE by 6.0 points to 53.6% in March, above market expectations for an increase to 50.7%. The report indicated: “The increase in the Barometer was led by a very sharp rise in Production, which followed an even steeper decline in the previous month. The biggest surprise came from the Employment component which rose above the 50 mark in March and to the highest level since April 2015. This followed a period of relative weakness compared with other activity indicators. Both New Orders and Order Backlogs also posted significant increases, with backlogs just short of moving into expansion for what would have been the first time since January 2015. Inventories were broadly flat, remaining in contraction for the fifth consecutive month. Respondents were optimistic orders would increase over the coming three months, with 44% saying they would be higher, compared with 13.5% who thought they would be lower. Panellists, though, were less confident this year as compared with outturns of 55.6% and 8.9% respectively when the same question was asked in March 2015. The recovery in the oil price had some impact on prices in March, but Prices Paid remained in contraction for the eighth consecutive month. If sustained, the rise in oil prices is likely to put further upward pressure on prices over the coming months.” On an ISM weighted basis Empire State rose by 11.5%, Richmond climbed by 17.4%, Philly rose by 14.9%, Kansas City increased by 6.3% and Dallas increased by 5.2%.