Does a Slower Chicago PMI Reading for December Matter?

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The week of December 30 ended with a final economic report that is actually not a government report. The December Chicago Business Barometer was down 3.0 points to 54.6, well short of the 57.0 expected by Bloomberg, and under all estimates in the 56.0 to 58.6 range from Econoday.

New orders and order backlogs led the barometer’s decline. This was listed as the lowest since October’s reading but was the fifth highest report of 2016.

Slowing orders held back December’s Chicago PMI reading. New orders continued to expand above 50 but they rose at a slower pace (down 6.7 points to 56.5).

Friday’s report indicated that the backlog of orders slipped back into contraction, while production slowed and the employment component was shown to have held steady.

Inflationary trends may be seen as input prices rose. The prices paid rose by 1.2 points to 58.0. This is representative of moderate inflationary pressure. Panelists reported that the prices of metals, plastics and transportation costs were all increasing, with another commenting that “prices are headed higher.”

This month’s special question asked how they expected the new administration’s policies to affect their business in 2017. Similar to what we saw in the consumer sentiment report at the end of November (with some exceptions), the MNI Chicago Business Barometer said:

Over half of total respondents expected their business to prosper, with many citing anticipated tax reforms and deregulation as positive for business. However, 40% thought it would have no impact and 9% said they anticipated a negative impact on their activities.

Jamie Satchithanantham, economist at MNI Indicators, described the end of 2016 and the start of 2017 as follows:

The Chicago Business Barometer ended 2016 in a much healthier position than a year ago when it slipped into contraction. This is largely owed to stronger outturns in the second half of the year and is testament to the resilience of the US economy.

Most respondents to our survey remain upbeat about the fate of their business as we head into 2017, buoyed by fresh hope of better things to come under the new administration. Hopefully, 2017 can build on the momentum generated in the latter stages of 2016.