September’s Chicago Purchasing Managers Index reading came in better than expected. The monthly index rose to 54.2 from a 51.5 reading in August. Bloomberg had its consensus estimate placed at just 52.0 for September.

A couple of things stood out in this report. One was that production was at its highest level since January of 2016. Still, the new orders and order backlogs, which led the decline in the month of August, were little changed in September.

All in all, the barometer recovered most of its lost ground experienced in the previous month. The slump to 51.5 in August was after readings of 55.8 in July and 56.8 in June. September showed a gain after new orders had been slow over the course of the summer months.

Friday’s economic release from the ISM-Chicago showed:

• On a trend basis, the MNI Chicago Report paints a slightly better picture than earlier in the year with the Barometer averaging 53.8 in Q3, up from 52.2 in Q2 and the highest quarterly level since Q4 2014.
• The latest increase was driven by a sharp gain in Production, which rose 7.3 points to 59.8, the highest since January 2016. New Orders and Order Backlogs, which led the Barometer’s decline last month, were little changed in September, with the latter failing to bounce back above the 50 breakeven level. Employment was the only Barometer component that fell, having rallied to a 16-month high in August.
• Prices Paid rose slightly, indicating early signs of pipeline inflationary pressures, after four consecutive monthly falls left the indicator running at a five-month low.

Lorena Castellanos, senior economist at MNI Indicators, offered the following:

Economic growth in the US appears to have picked up a little at the end of the third quarter and although the Employment component fell, this was on the back of a relatively strong showing in the previous month. Note Employment usually lags changes in orders and output, so it was not that surprising to see this component weakening in September.

As a reminder, this monthly report tracks both the manufacturing sectors and the non-manufacturing sectors of the Chicago-area economy.

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