Econintersect: The Chicago Purchasing Managers Index rose 2.5 points, remains in expansion territory, and continues the trend of an improving business sector.
The Chicago Business Barometer eased to 62.6 in June, from a seven month high of 65.5 in May, but was still up sharply on the quarter and consistent with a bounceback in Q2 GDP.
The market was expecting a value of 61.0 to 66.5 (consensus 64.0) versus the reported value of 62.5. A number below 50 indicates contraction.
The Barometer was up considerably from 52.0 a year ago, marking the fourteenth consecutive monthly expansion, and the third month in a row above 60. The bounceback in Q2 to a solid average of 63.7 from 58.4 in Q1, was the highest level for three years and points to a rebound in GDP growth in the second quarter following the sharp fall in Q1.
The Barometer’s strength during Q2 was underpinned by strong rises in both New Orders and Production. In June, a fall in New Orders from a seven month high in May led the Barometer’s decline, although it remained well above the 50 mark, confirming continued strong demand. Order Backlogs also weighed negatively on business activity and declined from May’s three year high. While both components contributed negatively to the Barometer in June, they remained well above their 10 year averages.
Production rose firmly above 70 in June, close to April’s level, and ended at an average of 68.3 in the three months to June, nearly eight points above Q1. Increased output led to a gain in the Employment Indicator to a four month high. A lengthening in Supplier Deliveries also supported the Barometer in June, but weighed negatively on business.
Commenting on the MNI Chicago Report, Philip Uglow, Chief Economist at MNI Indicators said, “The Business Barometer shows activity slowing a little between May and June, but it remains at a high level supported by the strength in Production and New Orders.” “The downward revision to GDP in the first quarter was far larger than expected, and while the data now look a little historic, and the Chicago Report points to a bounceback in Q2, it does mean growth will be slower over the first half of the year than first thought. The Q3 data cycle, not least our own Barometer, will be critical in terms of determining the timing of the first hike in rates,” he added.
The Chicago ISM is important as it is a window into the national ISM reports which will be issued shortly. When you compare the graph below of the ISM Manufacturing Index against the Chicago PMI (graph above) - there is a general correlation in trends, but not necessarily correlation in values.
source and read the full report: Chicago PMI