Economic activity decoupling is no longer a phenomenon between the developed and developing world. It is between the Chicago region and everywhere else. And because the Chicago PMI is supposed to be representative of the Manufacturing ISM, the market just loves (or rather loved, considering the 10 minute leak of the data) that the PMI soared from 56.5 to 60.4 on expectations of a decline to 55.0. The internals were all hot, hot, hot as follows: "Business Activity: "EMPLOYMENT expanded to highest level in 4 months; NEW ORDERS erased net declines accumulated since April; ORDER BACKLOGS remained in contraction at a 23-month low; SUPPLIER DELIVERIES approached neutral; while the buying policy was as follows: PRODUCTION MATERIEL moved to an 10-month high; CAPITAL EQUIPMENT lead times ended a 4-month uptrend." Yet as usual the amusing part, which is straight from the respondents was the following: "We are seeing unannounced and incredible inflation on one product, multiple parts, that we are purchasing out of Europe. At 400% increase we thought surely must have been a mistake. This is not related to $ exchange since we pay in Euros already. Supplier says they cannot absorb costs anymore." And that's why Houston, we have a problem.
Compare Chicago PMI and Philly Fed:
Full survey panel response:
1. "We are seeing unannounced and incredible inflation on one product, multiple parts, that we are purchasing out of Europe. At 400% increase we thought surely must have been a mistake. This is not related to $ exchange since we pay in Euros already. Supplier says they cannot absorb costs anymore."
2. "Continued export of manufacturing with simultaneous mandates to reduce global raw material inventories while maintaining high customer service levels globally is the greatest challenge. Locating new localized sources for raw goods in new manufacturing locations also lenghty and expensive. Quality consistency seems to be the biggest headache for new factories attempting to qualify local suppliers. US based goods often continue to be used at a higher cost thus impacting the bottom line but keeping customers coming back."
3. "Talk of tax increases has many of my suppliers nervous and they now are reluctant to expand their business with either labor or capital investments."
4. "Business continues strong & the backlog remains good."
5. "We are finally adding personnel on a regular basis to help meet the increasing demand we are
facing. Our standards are lower in terms of experience but not quality of the employee."
6. "We buy gold for our manufacturing process. Pricing is Ugly!!!!"
7. "Concerns with double dip recession due to short term strategies for raw material and energy pricing (example: oil pricing has dropped significantly; however, prices at the pump remain elevated). This approach to pricing appears to be systemic resulting in eroding margins and lack of capital to fund growth for manufacturers in USA."
8. "Our production is slammed right now, but our backlog is still low, basically everything we are getting in we are pushing out the door as fast as we can complete them."