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 5/30/08 For May 2008 | ||||||||||||
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Highlights
Chicago purchasers' data definitely improved in May, led by strength in the most important component -- new orders which rose more than 3 points to 56.1 indicating that significantly more firms in the area enjoyed a month-to-month increase than a decrease. Backlog orders are another positive, showing only a moderate month-to-month decrease at 46.8 and snapping three straight months in the 30s range. Orders of course are the backbone for business, pointing to rising production and employment in the months ahead. The headline index, which is a composite of components, came in at 49.1 vs. April's 48.3.
Production showed a month-to-month increase at 51.5, while contraction in employment slowed to 41.2 from April's dismal 35.3 reading. Inventories were drawn down sharply in the month, reflecting a combination of steady production and caution among firms that are no doubt being careful not to over produce given the uncertain economic outlook. Delivery times were little changed.
Now the bad news. Prices paid are at an astronomical 87.5, not quite a record but still indicating that nearly all firms are paying higher input costs compared to April. This is no surprise given the jump in energy and raw material prices underscored this week by Dupont's announcement of a sweeping 20 percent price hike on all products.
Some of the strength in new orders is in fact tied to inflation which is increasing dollar totals. But the report is still positive, confirming this week's durable goods report and pointing to stability, not recession, for the manufacturing sector. There was no significant reaction to the report which points to steady and firm readings for next week's ISM reports.
The NAPM-Chicago purchasing managers' index continued to reflect flat conditions in April, coming in at just below the break-even 50 level, at 48.3 for a 1 tenth gain from March. New orders showed a mild but steady rate of month-to-month increase, at 53.0 vs. 53.9 in March. As has been the case with other regional surveys, cost pressures for raw materials remain severe, largely the result of high energy costs. The prices paid index for April came in at 82.9, down 1 point in the month but still indicating that the vast majority of respondents are reporting month-to-month increases in costs.
NAPM-Chicago Consensus Forecast for May 08: 48.5
Range: 47.2 to 51.4
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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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