The Chicago Purchase Managers (aka Chicago Institute of Supply Management – ISM) shows sharp improvement in business conditions in the Chicago area. Although this report in the scheme of things is relatively minor, it does provide some insight into the ISM surveys which will be released next week.
The ISM survey’s main use is for investors as it historically tracts the Dow’s performance. From the viewpoint of an economic analyst, this is a survey with very poor methodology. It creates values for issues that are interesting but not economically significant. Survey’s in general are misleading at economic turning point.
In the case of this particular survey, it continues to show employment increasing and inventories shrinking – all contradicted by subsequent hard data. The two elements of the this survey which I follow are new orders and backlog.
In the opinion of the Chicago ISM, new orders are up MoM – but that is against a very negative month (August) – and it still lower than the opinion was earlier this year. From an analysis point of view, I am at a loss at what overall conclusion I should draw. This is a problem when you try to quantify MoM opinion.
What is interesting is the opinion that Backlog continues to increase – although this months increase was seasonally adjusted away. Backlog growth goes hand-in-hand with business growth. I cannot remember any other survey that has indicated improvement – and hard data is showing the opposite.
Overall, if we stand back from the trees – there is an overall down trend in this survey when taken as a whole.