Sticking with our theme of weakening U.S. economic indicators, the May 2011 Chicago Purchasing Managers Barometer dropped to 56.6 in may versus a reading of 67.6 in April 2011, seasonally adjusted.
However, the Chicago PMI is a diffusion index and anything above 50 indicates growth and this reports makes it 20 months in a row of growth.
The weakest part of this month’s report and the most important part for future growth is “New Orders”.
NEW ORDERS and PRODUCTION posted their largest declines in several years, but remained positive;
‘New Orders” dropped from 66.3 in April to 53.5 in May of this year, seasonally adjusted.
New orders are the leading component to this report. When new orders rise or fall it sets in motion the factors that lead to increases or decreases in the other key components. It is concerning that “New Orders” have dropped so dramatically from April but again it is a diffusion index and anything above 50 indicates growth. We are still seeing growth but at a subdued level.
The big impact from this report will be on the ISM that will be released a few days from now. The Chicago region contains a large percentage of the U.S. manufacturers and the Chicago PMI usually provides and advanced lead on the ISM, the big market mover. A weaker than expected Chicago PMI will most likely mean a weaker than expected ISM.
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