Chicago PMI Tanks, Some Components Back to 2009 Levels

The Institute for Supply Management (ISM) has released the Chicago Purchasing Managers Index (PMI) for the month of December, 2015. It was a negative report and is a picture of good times ending much faster than expected, right as the Federal Reserve has started to hike interest rates.

The Chicago Business Barometer was down 5.8 points to 42.9 in December, which was shown to be the lowest outturn since July of 2009. An issue to consider here is that negative trends point forward rather than just being a backward-dated view of the economy. And to show just how bad this was against the 48.7 reading from November: Bloomberg’s Econoday estimate for December was 50.0, and the lowest estimate was 48.0.

Order backlogs led the decline, registering a 17.2-point drop to 29.4 in December. This does not bode well for the coming months of orders which had been built up. In fact, the PMI showed that backlogs have been in decline for 11 straight months and now stand at the lowest level since May of 2009. Here is how the report worded this:

The double digit move in Backlogs is a rare occurrence and the depth of the decline has only been surpassed by a 17.4 drop in March 1951.

New orders signaled ongoing weakness with contraction at a faster pace. That level was also the lowest since May of 2009. The fall in production was more moderate but still back in contraction, and even the employment component fell back into the red and under 50.
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There was not much positive to view from this report. The ISM said:

The only positive this month came from a special question with 55.1% of the panel expecting demand to be stronger in 2016 compared with 14.3% who thought it would be lower. 30.6% of respondents thought demand would be unchanged. The only component of the barometer to increase was Supplier Deliveries, which expanded 4.8 points to 56.5, with longer delivery times more likely due to issues with logistics than demand.

The stock market indexes were already in the red coming into the Chicago PMI. This reading can’t be blamed for tanking the market on the last trading day of the year, but it could be blamed if there ends up being no bounce on the day.