US Tumbles Into Manufacturing Recession With Abysmal Chicago PMI Report

Tyler Durden's picture

America has never - ever - avoided a recession when Chicago's Business Barometer has collapsed to these levels. At 42.9, missing the expectations of 50.0 by the most ever, down from 48.7 in November, the final US economic data point of the year sums up perfectly what a disaster Yellen has hiked rates into.

Recession!!!

 

The details are ugly across the board:

  • PRICES PAID IN CONTRACTION FOR FIFTH MONTH
  • EMPLOYMENT CONTRACTS; LOWEST SINCE JULY 2015
  • INVENTORIES HIGHER AMID SLOWER DEMAND
  • PRODUCTION SEE 6TH MONTH OF CONTRACTION IN 2015
  • NEW ORDERS DECLINE SHARPLY TO LOWEST SINCE MAY09
  • PLUNGE IN BACKLOGS TO LOWEST SINCE MAY 2009
  • DEC BUSINESS BAROMETER LOWEST SINCE JULY 2009

The full details from Market News:

The December Chicago Business Barometer contracted at a faster pace in December, down 5.8 points to 42.9, a fresh 6-1/2 year low and the seventh contraction this year. 

 

December's decline placed the barometer's fourth quarter average at 49.3, matching that of Q2 2015, the weakest quarter since Q3 2009.

 

The biggest contributor to the barometer's decline was a 17.2 point fall in Order Backlogs, to 29.4, marking their eleventh consecutive month in contraction. December's print was the lowest since May 2009.

 

In addition, the Barometer was depressed by ongoing weakness in New Orders, which contracted at a faster pace, down 5.3 points to 38.8, the lowest level since May 2009. In line, Production and Employment fell back into contraction.

 

The only component of the barometer to expand at a faster pace was Supplier Deliveries, although some companies noted that the rise was influenced more by logistics issues during the holiday season and in preparation for Chinese New Year on February 8.

 

The barometer continued to feel the ill effects of general sluggish demand and lower energy prices, which have left their mark on Chicago area companies, along with the stronger US dollar. Moreover, well above normal temperatures, has impacted many businesses that rely on cold weather.

 

Inventories, which is not a component of the Barometer, expanded to just above neutral as companies found themselves left with stocks of finished goods amid the weaker demand backdrop.

 

Prices Paid was up but remained in contraction for the fifth consecutive month. Purchasers felt confident that cost increases were confined to non-raw material prices. 

 

Purchasers overwhelmingly reported that business activity levels were below seasonal norms. This feedback came from companies who usually see an uptick in business into the holiday selling season as well as those who see business taper off into the holiday.

 

Firms gave a downbeat assessment of full-year activity levels in the Chicago area, reflected both in comments from panellists and the barometer itself. The average of the Chicago Business Barometer fell to 50.4 in 2015 having averaged 60.7 in 2014, with conditions towards the end of Q4 proving particularly difficult.

 

The barometer fell deeply into contraction in February as oil prices started to fall. This led to a year earmarked by unrealised forecasts for both revenues and orders, which ultimately materialised in two inventory corrections, one after a wetter than normal start to summer and into year-end.

 

Additionally, area business was held back as companies responded to ongoing market turmoil in Greece from January through August while a weakening in China ploughed through the markets in the summer months. Extreme volatility in the equity markets in August also left its mark on area business at the end of the summer. By September, purchasers were hoping for a surge of orders late in Q3, and despite inventory preparations, demand failed to materialise.

 

Despite the ongoing contraction in business conditions in December and a sluggish year, expectations from purchasers were for a better 2016. According to a special survey question, 55% of  purchasers expected demand for their products and services to be higher in 2016. Some 30.6% expected demand to be flat and 14.3% though orders would be lower.

To be sure, there is always something to blame:

  • SOME COMPANIES NOTE WARM WEATHER HURTING DEMAND

Purchasers overwhelmingly reported that business activity levels were below seasonal norms. This feedback came from companies who usually see an uptick in business into the holiday selling season as well as those who see business taper off into the holiday.

Firms gave a downbeat assessment of full-year activity levels as companies found themselves left with stocks of  finished goods amid the weaker demand backdrop

But apart from that - The Fed would not have hiked rates if the economy was not doing great right?