Most know my disdain for surveys, and purchasing manager (ISM) surveys top my lists. Surveys are normally completed by administrative assistants, and are colored by the personal feelings of the form fillers. ISM surveys (aka Purchasing Managers) may or may not be in the business knowledge loop in the first place.
The Chicago purchasing manager survey has elevated misinformation to a new high with these headlines in their December 2010 release:
The Chicago Purchasing Managers reported the CHICAGO BUSINESS BAROMETER achieved its highest level since July 1988, expanding for the fifteenth consecutive month.
There is no survey or data of any shape or form at high levels – and to claim that Chicago area purchasing managers see activity at such high levels literally invalidates this survey. Break out the champagne as the headlines continue:
- PRODUCTION reached its highest levels since October 2004;
- NEW ORDERS improved to 2005 levels;
- EMPLOYMENT reached its highest level in more than 5 years;
- PRICES PAID accelerated to its highest point since July 2008.
- Lead times extended for MRO SUPPLIES and CAPITAL EQUIPMENT, while lead times for PRODUCTION MATERIEL plummeted to near August’s level.
We know production has been flat for the last few months, employment has not reached the highest level in five years, and the PPI data does not confirm there is any significant price increases underway.
Nevertheless, this survey has a lot of noise in it in the two categories I review – new orders and backlog.
One of the things you do not need to do is to seasonally adjust opinion – as the surveyed already take into consideration seasonal effects. So in reality, new orders are likely unchanged from last month if you want to believe anything in this report.
As pointed out by Gregory White at Business Insider, one area of the report that is worrisome is prices paid, which is up 55% over the past three months. If this number has any credibility at all, there are some big inflation problems ahead.
Anyone with a basic understanding of business processes knows backlog does not jump up and down – and should be the least noisy piece of data. Yet, here we have one of the noisiest data sets in this Chicago Purchasing Managers index.
Use this survey at your own risk.