One month ago, the Chicago PMI soared [4], printing at 56.2, far above the highest estimate. It was not meant to be, and printing moments ago at 48.7, a mirror image of last month, as this time it printed below the lowest estimate of 49, with consensus expected a 54.0 print.
[5]
And the sellside proving it is useless once again: here are the October and November forecasts and the actual print.
Confirming that that US is indeed in a manufacturing recession is the starting fact that the PMI has been below 50 (shrinking) for more months in 2015 (6) than it has been above this expansionary threshold.
The weakness was broad based, with New Orders (down 15.3), Prices Paid, Production, and Inventories all falling. There was some good news as Supplier Deliveries, Employment and Order Backlogs posted modest increases.
Here is the breakdown from MarketNews:
The Chicago Business Barometer fell 7.5 points to 48.7 in November from 56.2 in October, as both Production and New Orders fell sharply.
The significant decline in the Barometer is indicative of the see-saw pattern of demand seen in 2015, with output and orders shifting in and out of contraction. The November fall also suggests that activity over the final quarter of the year may well decelerate barring a bounceback in December.
The decline into contraction for the sixth month this year was due to a 15.3 point drop in New Orders and a significant fall in Production that reversed nearly all of October's surge and left it only marginally above neutral.
Order Backlogs remained in contraction for the tenth consecutive month, continuing to suggest there is little in the order pipeline.
Despite the drop off in business, both Supplier Deliveries and Employment were largely unchanged with both hovering above neutral.
The erratic pattern of stocks continued in November. Inventories fell sharply to below 50, having increased significantly in October. Underlying the softness in demand in November, 44% of panellists said that they thought their current level of inventories was too high, while 54% said that they were about right. Only 2% of the panel reported stock levels were too low, suggesting that a further inventory drawdown could depress growth.
Disinflationary pressures remained at the input price level with Prices Paid decreasing slightly in November, leaving it in contraction for the fourth consecutive month, a reflection of continued weakness in commodity prices.
With all the above in mind, purchasers remain cautious heading into December as the focus shifts to 2016, with panellists grappling with uncertainties in the labour market, demand and wage costs.
An unusually high number of survey panellists noted a seasonal impact on their business in November, both positively and negatively.
Some said the slowdown was greater than expected, while others noted sales were down as much as 3% year-on-year. There also continued to be reports of companies being below forecast.
Commentary from the survey panel was generally more negative in November with many noting weakness in commodity pricing, particularly oil, gas and agricultural products taking its toll on profits. Some said profits slumped as much as 10% as a result of weakness in the aforementioned. Others said the fall in the oil price had resulted in companies holding back on capital projects and expectations were that this would continue into the first half of 2016.
Companies that depend on colder weather said business has been very quiet, noting the break in the weather came very late in the season. Forecasts for a milder than average winter season had resulted in production slowdowns in cold weather related industries.
Finally, while the Fed is no longer data dependent, this will hardly change the Fed's rate hiking plans in just over two weeks, however one should probably ask just why is the Fed's tightening conditions as the economy continues to roll over deeper into what is now clearly a recession if so far mostly for the non-service part of the US economy.
