For a Purchasing Managers report to be in recession and/or true contraction, the reading needs to be under 50.0.  The May report from the Chicago Purchasing Managers Index came in at 52.7.  Bloomberg had a consensus reading of 56.1 expected and the prior report in April was up at 56.2.  Each of the prior 4 reports were above 60… Two components of the index are already signaling contraction rather than just a slowing of growth.

The index actually came in at the lowest reading since September 2009. New orders came in at 52.9, which is also the lowest growth rate since September 2009.  Ditto for the Production component right at the 50.0 mark.

Another issue is the Backlog component, which came in under 50.0 at 46.3 and that is now the third contraction for more than two years.  The prices paid component fell to 60.4 from 68.6.

What is sad about the readings here is that two components (Backlogs and Inventories) have gone under the 50.0 mark.  All 7 components of the index fell in May versus April and that is not a good sign.

The Bloomberg report on this reading signals a recession also: “Throughout the recovery this report has been posting strong rates of growth, and the slowdown here points at the risk of monthly contraction for an increasing number of other regional surveys… with last week’s flash reading from Markit Economics pointing to significant slowing.”

Unemployment and payrolls are due at 8:30 on Friday, but the ISM manufacturing survey is due Friday at 10:00 AM EST.  Bloomberg has a consensus estimate of 54.0 and the report in April grew by 1.4 points to 54.8.  We would expect the consensus estimates to ratchet down here over the next 23-hour period.  If those estimates are not lowered formally, just go ahead and expect the whisper numbers to be lower than the official consensus.

JON C. OGG

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