The MNI Chicago Business Barometer rose to 67.6 in December, up from 63.9 in November, closing at it’s highest level since March 2011.
Q/Q, the Barometer rose to 65.9 in Q42017 from 61.0 Q32017, as like the annual print the Q/Q data showed the best performance since Q12011. The report from the ISM noted that this is only the second time in the last decade there has been three consecutive above-60 readings in the Oct-Dec period.
Both output and demand showed strong gains in December, with each rising to multi-year highs. The Production indicator rose to a level last seen higher 34 years ago, while the New Orders Indicator hit a three-and-a-half year high. As for the other three indicators that comprise the Barometer, Order Backlogs also grew, but Employment and Supplier Deliveries fell on the month.
Firms’ unfulfilled orders edged slightly higher in December, but remained below the levels recorded in October, when businesses grappled with the worst of the recent, challenging weather conditions. Also reflecting the better logistical environment, supplier delivery times shortened in December. The associated indicator fell to the lowest level since April but remained comfortably above the 50-neutral mark.
Companies did, however, keep increased quantities of stock at hand. After hitting an eight-month high in November, the Inventories indicator rose to fresh 3-year high in December. There was evidence of firms carrying a larger level of stock to support stretched lead times and in preparation for product launches scheduled for the New Year.
Despite decreasing in December, the Employment indicator remained in expansionary territory. On a 12-month average basis, 2017 was the best year the indicator has had since 2014, slipping below the 50 on only four occasions.
Inflationary pressures at the factory gate remained high in December, though did edge down to the lowest level since August. The upswing in global demand, along with input shortages induced by this year’s hurricanes, saw prices elevated throughout the year.
Chicago Purchasing Managers Index (Business Barometer)
Market Sensitivity: Medium.
What Is It: Measures business activity in the Midwest region.
Most Current News Release on the Internet: www.ism-chicago.org
Home Web Address: www.ism-chicago.org
Release Time: 9:45 a.m. (ET); released on the final business day of the month being covered. (Subscribers get this report several minutes before the public release.)
Source: National Association of Purchasing Management, Chicago affiliate.
Revisions: The only revision comes from changes in seasonal adjustment factors, and it is made every January.
Bernard Baumohl. The Secrets of Economic Indicators
The Business Barometer report is one of those unfortunate releases whose time in the spotlight is short-lived because it’s quickly overshadowed by the national ISM story, which comes out the next business day. If the two reports diverge, market participants lean more on the ISM for the latest assessment of industrial activity in the country.
Bond traders can be highly sensitive to this report because it is a brief forerunner to the ISM manufacturing survey. An unexpected surge in the Business Barometer will likely cause bond prices to fall in anticipation that the national survey might show similar results. Another reason for its importance is that the Federal Reserve monitors this report to study conditions in the manufacturing sector and check for signs of production imbalances.
Aside from the insight one might gain into auto industry activity from this report, equity investors are not inclined to adjust their portfolios in response to it. Obviously, if both the Chicago and the ISM reports register hefty increases, the stock market might be more confident that corporate profits are on the rise. However, if the economy is already well into its expansion phase, stocks could respond perversely and retreat as expectations rise that the Fed will lift interest rates to slow the economy.
Foreign investors usually do not take major currency positions on the basis of just the Chicago index.