Chicago ISM Crashes: How Much is GM to Blame?

ISM Chicago reports Chicago Business Barometer Lowest Since December 2015.

• The Chicago Business Barometer fell 3.9 points to 43.2 in October, the lowest level since December 2015. The index slipped further into contraction with a second straight sub-50 reading. The survey points to further weakness in business activity, with the three-month average falling further to 46.9.
• New Orders declined to 37.0, its lowest since March 2009 — Production bounced up to 46.8, although the indicator has been in contraction since July.
• Order Backlogs saw the largest monthly decline, dropping by 13.6 points to 33.1. The index registered below the 50-mark for a second successive month after September’s level of 46.8.
• Inventories rose to 47.1, marking the strongest reading since August, indicating that companies continued to run down their stock, albeit at a slower pace. Employment registered a touch below the 50-mark in October, rising by 4.2 points to 49.8.

Special Questions

1. October’s special question asked “What impact the latest interest rate cuts by the Federal Reserve have on firm’s business?” The majority (51.1%) expect no impact, while 31.1% state a positive effect.
2. A second asked “How the government-imposed tariffs will affect their firm’s business?” While 56.5% noted a little negative impact, 26% indicated a major negative effect.

Dark Comedy

Chicago PMI comes in at 43.2 and the business sector is in recession but the Fed keeps talking about the economy and the state of monetary policy as being in “a good place”. Surely this is some sort of dark comedy routine.

— David Rosenberg (@EconguyRosie) October 31, 2019

Mid-Cycle Correction Idea Challenged

Worst Chicago PMI since 12/2015. But that’s okay. This isn’t a pre-#recession period. It’s a “mid-cycle correction” right? You know, 124 mos. into the longest expansion in history – one which you have to believe will reach 248 months for this to be a mid-cycle move, per “math”

— Mike Larson (@RealMikeLarson) October 31, 2019

Econoday Blames GM

• It’s often hot or cold for Chicago’s PMI sample and October, likely due to the GM strike, was a very cold month, at 43.2 for the headline composite index and a 4-year low. And the leading indicator among the report’s details, that is the new order index, is at a 10-year low and a very depressed score of 37.0. Backlogs, which are at a 4-year low and at an even more depressed 33.1, are fairing no better. But outside of orders, weakness is less severe with production at 46.8, inventories at 47.1, and input costs still on the rise at 54.8.
• Order scores in the 30s are usually seen at times of economic crisis which this sample may be suffering from the GM strike which, however, has been tentatively settled in what might prove to be a major positive for November’s report.

Questioning the GM Thesis

The two standouts from the gory Chicago PMI: New Orders declined to 37.0, its lowest since March 2009. Order Backlogs fell by 13.6 points to 33.1.

Backlogs are FUTURE DEMAND.

Is this purely the GM strike? If so, why did employment index tick UP to 49.8?https://t.co/lUCTHjQ2W6

— Danielle DiMartino Booth (@DiMartinoBooth) October 31, 2019

Judging from the special questions, Tariffs, not GM, may be the major issue.

Mike “Mish” Shedlock