Chicago PMI

September 30th, 2014 10:15 am | by John Jansen |

Via Millan Mulraine at TDSecurities:

US manufacturing sector momentum weakened in September, with the Chicago PMI falling at a faster than expected pace to 60.5 from 64.3 the month before. This was a bigger drop than the market consensus for a decline to 62.0. However, despite the drop this indicator is holding close to the 6-month average of 60.7, which suggests that the manufacturing sector activity is continuing to grow at a fairly fast clip. However, the outlook for activity is weakening.

The details of the report were not particularly encouraging, with growth in the forward-looking indicators such as new orders (down from 65.6 to 60.0) and orders backlog (down from 58.3 to 52.5) slowing. The production index also slipped massively, falling to 64.9 from 74.7 the month before. Moreover, with the inventory sub-index rising sharply (up to 70.8 from 61.2), the inventory to new orders spread (a very good proxy for future output) fell to its lowest level since the recession at -10.8 from 4.4. This we believe is a harbinger for further deceleration in production activity over the coming months.

This report points to some weakening in underlying manufacturing sector momentum, and even though activity remains at a fairly decent clip (with the index at a relatively healthy 60.5) the decline in the broad array of forward-looking indicators signals a further deterioration in momentum in the months ahead. Understandably, this particular index is quite volatile and a better reading on the manufacturing sector will come tomorrow with the release of the ISM manufacturing report, however, we believe that the risks to our on-consensus call for a 58.3 print on ISM may be tilted to the downside.
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