Afterthought: Was Chicago PMI Really That Strong? Commentary Says No

By Jon C. Ogg Published May 31, 11:25AM EDT

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Stocks were trading weak this morning before the economic news was out, but the markets had recovered going into the Chicago Purchasing Managers Index and ahead of the revised Reuters/University of Michigan Consumer Sentiment results. Both readings were for May, and both were better than expected and indicative of sharp recoveries. So why was it that stocks initially sold off on the news?

The commentary from the ISM Chicago appears to be far more cautious than the numbers might have led you to believe, if you just looked at the numbers that were the highest in more than a year. We said earlier this morning:

While April’s report was down at 49.0 and while Bloomberg had consensus at only about 50.0, the Chicago Purchasing Managers Index (PMI) clocked in at a whopping 58.7 for May. The range of economists was all the way down at 47.5 to 53.0, and this indicates that business has snapped back much faster than what any of the economists have modeled.

After looking through today’s report we looked at the commentary at the very end of the publication. The good news is that stocks have since recovered from the initial losses. The bad news is that the commentary from those under the regional survey is just not anywhere as positive than the post-recession high numbers you might have seen.

Here were the comment summaries provided in the full detailed release from the ISM-Chicago:

Lately the months start good and then end bad.

Three months of declining sales in one of our core product lines indicates a slow down, though there are a couple of others hanging in there.

Some primary commodity resins we buy are starting to moderate and even decline a bit in price.

Business activity should be picking up and be stronger by this time of the year, but a bit more delayed than usual, so some concern there.

With the second corrugated linerboard increase in 6 months, the producers are showing us what an oligopoly is all about.

Corrugated costs are going up based on supposed paper demand increases. The timing of this is a bit off based on only modest increases in market demand. I expect this increase to fail with time.

Most other items are not increasing at this time.

New orders have been light since March, but the sales people are still optimistic that a couple of big orders are soon to be released.

About the Author Jon C. Ogg →

Jon Ogg has been a financial news analyst since 1997. Mr. Ogg set up one of the first audio squawk box services for traders called TTN, which he sold in 2003. He has previously worked as a licensed broker to some of the top U.S. and E.U. financial institutions, managed capital, and has raised private capital at the seed and venture stage. He has lived in Copenhagen, Denmark, as well as New York and Chicago, and he now lives in Houston, Texas. Jon received a Bachelor of Business Administration in finance at University of Houston in 1992. a673b.bigscoots-temp.com.