Chicago PMI drops to two-year low in January

Economic activity in the Chicago area deteriorated much more than expected in January, according to figures released on Thursday.

The MNI Chicago business barometer index fell to a two-year low of 56.7 from a downwardly-adjusted 63.8 in December, missing expectations for a reading of 61.5.

Four out of five of the barometer's sub-components started the year lower, with notable falls in production and new orders contributing to most of the 7.1-point drop in the headline index.

Jai Lakhani, economist at MNI Indicators, said: "The MNI Chicago business barometer had a sluggish start to 2019, pressured by significant drops in both new Orders and production, resulting in the lowest headline reading in two years.

"Encouragingly, some anecdotal evidence pointed to temporary factors such as holidays as the reason for dampening output as opposed to inherent weakness in demand."

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the data was grim and likely to be grimmer still over the next few months.

"We have argued for some time that conditions in manufacturing are likely to deteriorate further over the next few months, and this drop in the Chicago PMI, to a 24-month low, is consistent with our view.

"China’s sharp slowdown - which is much worse than the official data suggest - has not yet fully worked through the US data, so this probably does not mark the bottom for the Chicago PMI. The good news, if there is any, is that the drop in the Chicago index looks more like a catch-up after the December plunge in the ISM index, rather than a clear signal of another ISM drop next week. But that’s not much comfort, because the trends in all the key surveys are deteriorating."