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Chicago PMI Crashes to 40, the 9th Straight Month of Contraction

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24 comments on Chicago PMI Crashes to 40, the 9th Straight Month of Contraction

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Chicago PMI courtesy of Trading Economics

The ISM Chicago Business Survey, is a regional view of the national economy by the Institute for Supply Management.

The PMI is a diffusion index. Readings above 50 indicate expansion. Readings below 50 indicate contraction. 

The Chicago PMI reading combiners manufacturing and services into one report unlike the national ISM reports.

The Bloomberg Econoday consensus estimate for the Chicago PMI was 47.0 in a range of 44.5 to 47.5. 

This was an unexpected crash. But it is a volatile diffusion index where direction matters more than magnitude.

Manufacturing ISM Contracts Six Straight Month, New Orders Down Eight Months

On May 1, I commented Manufacturing ISM Contracts Six Straight Month, New Orders Down Eight Months

Chart by permission from the Institute for Supply Management ® ISM® 

ISM is in contraction for six months and has been signaling recession for five of them.

The Chicago PMI may be a prelude to the next national reports. ISM manufacturing and ISM Services reports will follow, with the former out tomorrow.

The BLS monthly jobs report will be Friday, June 2.

This post originated on MishTalk.Com.

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24 Comments
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Siliconguy
Siliconguy
2 years ago
This morning the news said hiring was stronger than expected. Then there was an interview with a hiring manager for social services complaining of high turnover. She was offering $22/hr for a masters degree, no wonder she can’t get or keep anyone.
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RonJ
RonJ
2 years ago
Reply to  Siliconguy
Apparently, city of L.A. is considering forcing hotels to pay workers $30 an hour minimum by 2028.
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Lisa_Hooker
Lisa_Hooker
2 years ago
Reply to  Siliconguy
Offering hourly wages for a masters degree.
That says something about what’s happened to the value of graduate degrees right there.
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worleyeoe
worleyeoe
2 years ago
Another month and it’s time for the next employment report. Historically, residential construction leads us into a recession. Let’s see what the Tea Leaves say on Friday. So far, the labor market has been quite robust and doesn’t really seem to call about the 500-basis point rise to the FFR over the last 13 months.
One or two more 25 increases isn’t going to break anything that’s not already broken. The Fed will backstop any and all banking issues, so we can take that hysteria out of the equation. And the Fed already knows which banks are likely to just like they knew about SVB. And the low ISM reading could be nothing more than a blip just like even lower reading hit last November. Oh, and what was the culprit then? Oh, yeah, those 75 point hits from last fall.
Everyone seems to be signaling more tightening is ahead, but Joe Consumer could give a rats a$$ and continues to spend like a drunken sailor. As such, I wouldn’t read too much into the latest ISM data, even if it’s a six-month trend. The Joe Consumer is KING and no one should be surprised that manufacturers are pulling back. Just don’t tell Joe that, and I’m not talking about Biden.
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Salmo Trutta
Salmo Trutta
2 years ago

see:
Large Time Deposits, All Commercial Banks (LTDACBM027NBOG) | FRED | St. Louis Fed (stlouisfed.org)

See: BOE “Working Paper No. 529 – “Banks are not intermediaries of loanable funds —and why this matters” by Zoltan Jakab and Michael Kumhof
Banks are not intermediaries of loanable funds – and why this matters | Bank of England

Link Richard Werner:
Prof. Werner brilliantly explains how the banking system and financial sector really work. – YouTube
See: “Should Commercial Banks Accept Savings Deposits?” Conference on Savings and Residential Financing 1961 Proceedings, United States Savings and loan league, Chicago, 1961, 42, 43 Dr. Leland J. Pritchard, Ph.D. Economics, Chicago 1933, M.S. Statistics, Syracuse
It is hard for the average person to believe that banks do not loan out savings or existing deposits – demand or time deposits. However from a system’s vantage point, the DFIs always create the money by making loans to, or buying securities from, the non-bank public.

This results in a double-bind for the Fed. If it pursues a rather restrictive monetary policy, interest rates tend to rise. This places a damper on the creation of new money but, paradoxically drives existing money out of circulation into the stagnant (gated) savings deposits. In a twinkling, the economy begins to suffer.

The bank lending channel thus does not represent the credit channel nor the interest rate channel nor intermediated credit.

Hence, Dr. Philip George’s: “The Riddle of Money Finally Solved”
works.
The riddle of money, finally solved (philipji.com)

( the ratio of M1 to the sum of 12 months savings ).

Keynes’ “optical illusion” is that all bank-held savings are frozen.

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Salmo Trutta
Salmo Trutta
2 years ago
Trajectory as predicted.
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8dots
8dots
2 years ago
Chicago Fed cover : MI, IN, IL, IA and WI. That’s a lot of old & new industrial stuff.
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KidHorn
KidHorn
2 years ago
But, JOLTS had a huge increase in job openings. I always thought companies would hire less during contractions. The few companies that still respond to JOLTS must be doing well.
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Doug78
Doug78
2 years ago
I wonder if Chicago is a good as it was as an economic indicator. Granted it still encompasses a large part of the nation’s economy but it has been losing population and industry for many decades now so it could be more a sign of really bad local conditions that are specific to Chicago itself and not an indicator of a wider malaise. I am sure what happened to Chicago is painful to Mish. I myself grew up in a steel town whose economy had collapsed way back in the late 70’s and never really recovered.
In the meantime, I wonder who gets this one.
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TexasTim65
Doug78
Doug78
2 years ago
Reply to  TexasTim65
Got it!
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Directed Energy
Directed Energy
2 years ago
FWIW, Pigeon Forge and Gatlinburg were packed for the holiday weekend. White water rafting boats were packed in Nantahala. Nashville is insane and “Now Hiring” is all over Huntsville.
Not seeing any “crashes” happening.
Try to get a decent hotel in Myrtle Beach for the 4th. Not happening.
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MPO45v2
MPO45v2
2 years ago
Reply to  Directed Energy
This is a great read about the Great Recession in ’08. I only copied a small quote of the conclusion but the whole thing is very interesting.
Our reading of the available evidence is that the Great Recession was not consumption driven. The fall in consumption
occurred after, not before, the financial crisis and the deflation of the housing bubble. However, once the consumption
decline was in full swing, it acted to prolong the recession and the continuing downturn. The effects of this consump-
tion decline continue to this day and make a recovery a less certain affair.
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KidHorn
KidHorn
2 years ago
Reply to  Directed Energy
It’s hard to find a hotel room at a beach resort on the 4th of July. That’s never happened before. The economy must be booming.
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Directed Energy
Directed Energy
2 years ago
Reply to  KidHorn
From 08-10 you could go anywhere, any time without a reservation. Hotels were not full at all, even on holidays.
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KidHorn
KidHorn
2 years ago
Reply to  Directed Energy
Not true.
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MPO45v2
MPO45v2
2 years ago
Speaking of crashes, Advance Auto Parts crashing 35% today ouch…..cuts dividend from $1.50 to $0.25. Other auto parts stocks not doing too great either. There is going to be a lot of bargains over the next year but now is not the time to buy, more bleeding to come. T-bills all the way!
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babelthuap
babelthuap
2 years ago
Reply to  MPO45v2
Advanced Auto parts earnings is brutal but it doesn’t surprise me. I use to change my own oil but stopped years ago. It’s not any cheaper than dropping it off. I did go in there a couple weeks ago but for a lawnmower. I needed a sealant for a crankcase cover. They do have lots of car washing stuff but I think I’m the only person on my block that still washes my own cars but that’s out of nostalgia of working at a full service gas station as a kid.
My spouse use to work for a major bottle supplier. Their best seller were oil bottles. Booming business but as soon as it started to die she jumped ship. End of an era…meh.
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billybobjr
billybobjr
2 years ago
Reply to  babelthuap
I can change my oil and filter for 30 dollars full synthetic and rotate tires in about an hour.
To your point though less people work on cars and that is what you are seeing there are more ICE vehicles than ever.
People just don’t wash or do regular maintenance anymore it is more of a service thing and the ones who did
are baby boomers and they are aging out of doing it . Where i live to get oil change and tires rotated is about 70
to 100 dollars for full synthetic . I like doing it myself because i know its done right . Regardless a good Ice vehicle
will go 200 thousand plus if you treat it right with filters and oil lube changes . Cars are way better than they used to be
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Directed Energy
Directed Energy
2 years ago
Reply to  babelthuap
Auto Zone stock is $2300 a share. O’Reilly is a busy store. Advance just sucks.
I wash my own cars, it’s $10 to drive through a car wash. That’s ridiculous. I can wash and dry my car in 15 minutes.
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TexasTim65
TexasTim65
2 years ago
Reply to  MPO45v2
It’s only going to get worse for Auto Parts stores going forward as EV’s start to make up more and more of the new cars sold since they require a lot fewer repairs.
Obviously not all their miss can be blamed on EV’s since they are still only a small fraction of the cars out there but expect this to be a trend in the coming years.
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MPO45v2
MPO45v2
2 years ago
Reply to  TexasTim65
Tires, break pads, air filters, washer fluid and battery maintenance for EVs. I read somewhere that EV’s are harsher on tires and Bridgestone has designed a new one, probably more expensive.
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MPO45v2
TexasTim65
TexasTim65
2 years ago
Reply to  MPO45v2
Yes, I read the same recently and it makes sense since EV’s are a LOT heavier than ICE vehicles due to the battery weight.
In Canada they are already looking at tire emissions as the next ‘green frontier’ in terms of pollution so this will hit EV’s harder.
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