Friday, December 29, 2006

Chicago PMI "Regains Footing"

From the Release

The Chicago Purchasing Managers reported the Chicago Business Barometer regained its footing to register some improvement.

- Production and New Orders regained strength while the rate of decline in Order Backlogs stabilized;

- Prices Paid were unchanged from November;

- Employment contraction continued as reported layoffs increased while hirings decreased

Let's look a bit deeper into the survey.

The index dropped from September through November, then rebounded in December. We'll have to wait until January to see if this number continues its upward movement.

There was a nice upward move in new orders. But these can always be canceled, so until they get into production this number may be a bit high. Also note this was the seasonally adjusted number. The unadjusted number increased .5 instead of 5.8.

The prices paid component increased slightly. This is not a good sign for the Federal Reserve policy going forward and takes some wind out of the "Fed has to lower rates in the new year" argument.

There were several comments about slowing construction and how that was having a negative impact. There was also a comment about how the lack of a federal budget was hurting overall production. This implies that when a budget resolution is passed, the Chicago PMI could see a 1-month jump. Finally, there was a comment about manufacturing being moved off-shore while financial work was remaining onshore.

Short version: A 1 month improvement that contains some future concerns (prices paid and employment) and will need at least 1-month of upward verification. In other words, this could be a trend reversal, but we need more information going forward.