The National Association of Purchasing Management - Chicago compiles a survey and a composite diffusion index of business conditions in the Chicago area. Manufacturing and non-manufacturing firms are both surveyed, but until recently, market players have believed that the survey primarily covers the manufacturing sector. Readings above 50 percent indicate an expanding business sector. The NAPM - Chicago is considered a leading indicator of the ISM manufacturing index. Why Investors Care
| Released on 2/29/08 For Feb 2008 | ||||||||||||
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Highlights
The Chicago NAPM report is falling in line with other business surveys to show contraction, at 44.5 in February vs. 51.5 in January and a very strong 56.4 in December. New orders are the most important indicator to watch, perhaps more so than the headline which is a composite of other less leading indicators. And new orders back in January, at 44.7, signaled the wide drops through other components seen in this report. Orders for February signal more of the same in the months ahead, at a 48.8 level that may be 4 points higher than January but, because it's a sub 50 reading, indicates a month-to-month contraction from January. Businesses in the Chicago area have already worked through backlogs, which are at 38.3 vs. January's already contractionary 48.0.
Production not surprisingly is slipping, at 46.5 vs. 51.3, and this is leading to contraction in employment, down to a very bleak 33.5 vs. January's 47.0. Very few purchasers in the Chicago area are reporting delays in deliveries, with the index at 39.6, and purchasers do not appear to re-stocking inventories, which are at 46.0 vs. 51.1.
The final reading tells the story facing the economy as prices paid remains severely elevated at 79.4. If business activity does slow as indicated by this and a host of other reports, costs for raw materials will be coming down -- that at least is the hope of the Federal Reserve. The Chicago report is not showing itself to be a leading indicator during this pivotal point in the business cycle, lagging the ISM national purchasing surveys in both manufacturing, which dipped below 50 back in December, and especially non-manufacturing, which last month of course posted a startling dip to 41.9 (note that the Chicago survey includes purchasers from all sectors of the economy). The dollar and stocks appeared to dip in immediate reaction to the headline, while Treasuries held steady.
The NAPM-Chicago purchasing managers' index fell back about 5 points to 51.5. But the new orders index is pointing toward a likely further decline in the overall index in February as January new orders dropped from 56.7 in December to a very weak 44.7 in January - a sub-50 reading that indicates month-to-month contraction. Backlog orders also fell badly, down more than 12 points to 48.0.
NAPM-Chicago Consensus Forecast for February 08: 50.0
Range: 47.0 to 53.0
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The NAPM-Chicago Survey registers manufacturing and non-manufacturing activity in the Chicago region. Investors care about this indicator because the Chicago region mirrors the nation in its distribution of manufacturing activity. Consequently, the NAPM-Chicago survey often moves together with the ISM index, but is reported one day in advance. |
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