Chicago PMI beats expectations in January

Economic activity in the Chicago area picked up in January, according to data released on Monday.

The MNI Chicago business barometer rose to 65.2 from a revised 64.3 in December, coming in ahead of expectations for a reading 61.7. The previous month’s level was revised up from 63.1.

Among the main five indicators, order backlogs, employment and supplier deliveries all increased, while production and orders fell across the month.

The prices paid index softened 1.9 points to an eight-month low, just below the high 12-month average of 89.1. Meanwhile, the supplier deliveries gauged strengthened to 87.6, although some firms began to see easing of supply chain disruptions, while others found that Covid outbreaks had impacted lead times.

Production slowed 2.4 points, sitting almost four points below the 12-month average as labour absences and material shortages reduced production capacities, while the employment index rose following three consecutive months of decline, recovering 4.6 points to 49.1 to around August 2021 levels.

New orders slowed in January, but remained 1.3 points above the 12-month average, despite firms citing seasonal slowdowns. At the same time, order backlogs inched up to 61.9, coming in below the 12- month average of 66.8.

Inventories dropped 5.8 points to 54.8, with firms saying that persistent shortages of raw materials, chemicals and packaging were depleting stocks.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said:"This is a better result than we expected, so we’re raising our forecast for tomorrow’s national ISM manufacturing index by a point to 57, down from 58.8 in December.

"The first January survey to be released- the Empire State report - appeared to point to a rollover in manufacturing activity, but other regional surveys have been less weak, and the Chicago numbers move the needle up a bit further.

"The Chicago PMI and the ISM trend together over time, as the chart shows, but none of the regional surveys are a reliable guide to the ISM month-to-month, partly because none of them cover the economy west of the Rockies. Disruption from China, therefore, can hit the national survey before the regional numbers capture the pain. The big picture for manufacturing is still favourable, but the sector is nonetheless susceptible to disruptions from the Omicron wave, both at home and overseas, so a couple months of slower growth in activity and employment in the sector seem a decent bet."