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Chicago Purchasing Managers Index increased 7.5 points to 56.2 in October
The Chicago Business Barometer increased 7.5 points to 56.2 in October from 48.7 in September, led by strong gains in both Production and New Orders.
The sharp increase in the Barometer pushed it to the highest since January and marks a promising start to the fourth quarter, building on the small gain made in Q3. Production led the latest increase, jumping just under 20 points to 63.4, while New Orders also rose sharply, leaving both at the highest since the start of the year. Firms reported signficant growth in inventories, which accounted for part of the leap in output in October.
In response to a special question, panellists said they were optimistic that orders would remain firm, with 36.4% of respondents stating that they thought New Orders would increase in Q4 from Q3. This compared with 25.5% who thought they would be lower, with 38.2% predicting orders would remain unchanged. While caution should be taken in interpreting the results of the special question, as they are not seasonally adjusted, it suggests that much of the recent increased pace in stockbuilding is more likely planned than unplanned.
While the pace of Production is not too far from the 2014 average, the Barometer has been held back by much weaker readings on its other components. Order Backlogs, Employment and Supplier Deliveries all declined between September and October. Backlogs dropped further below the 50 neutral level with firm output and sufficient inventories keeping backlogs lean as they have been throughout 2015. The concern remains that a lack of unfilled orders leaves companies more vulnerable to demand shocks.
Employment fell back to just above 50 in October, with demand for labour down significantly from 2014 levels. Some comments pointed to continued issues sourcing qualified workers.
Disinflationary pressures remained at the input price level with Prices Paid increasing slightly in October but staying in contraction, thanks to lower commodity prices.
Chief Economist of MNI Indicators Philip Uglow said, “The dissapointing September data look more like an aberration than the start of a trend, and the October results mark a good start to the final quarter of the year. Respondents were optimistic that orders will continue to pick-up, consistent with an acceleration in economic activity in Q4.“
Posted: October 30, 2015 Friday 09:45 AM