Chicago PMI falls below expectations in October

Manufacturing activity in the Great Lakes area got off to a weak start in the fourth quarter, the results of a widely-followed survey showed.

MNI´s Chicago factory sector purchasing managers´ index declined by 3.6 points to a five-month low of 50.6.

Economists had forecast a reading of 54.0.

The lower reading was mainly the result of a fall in the production sub-index, which retreated by 5.4 points to 54.4, with the new orders sub-index also acting as a drag after falling to its lowest mark since May.

A gauge of the prices paid by companies hit its highest level since November 2014, with survey respondents pointing to the higher cost of oil, steel and for plastics.

Meanwhile, order backlogs fell for a third successive month and supplier deliveries dropped to their lowest since June.

Firms also shrank their stockpiles at the fastest pace since May 2016, MNI said.

On a rosier note, the employment sub-index edged back above the 50-point breakeven level.

Commenting on the data, ian Shepherdson, chief economist at Pantheon Macroeconomics, said: "We had hoped for a rebound, because the September index was weaker than implied by the recent flow of orders for Boeing aircraft. Most of the time, the Chicago PMI oscillates in line with shifts in aircraft orders, with a lag of a couple of months, but short-term deviations are not unusual. The current gap between the nunbers is not unusually wide. We look for a modest rebound next month. In the meantime, the regional PMI surveys point to a trivial dip in tomorrow's headline ISM manufacturing index, to about 51 from 51.5 in September."

For her part, Lorena Castellanos, senior economist at MNI Indicators, said: “A key takeaway from the latest survey was the pick-up in Prices Paid to a nearly two-year high. Inflationary pressures are on the rise, which is one of the metrics the Federal Reserve has been waiting for to increase rates.

"However, economic growth ahead, as read by the October Chicago Business Barometer, looks very disappointing. Hopefully, it doesn’t mark the start of a downward trend.”