Chicago PMI Misses, Survey Respondent: "Companies That Are Very Profitable Still Behaving As If Bankruptcy Is Around The Corner"

While the miss in the April Chicago PMI was just as we predicted, with the final read of 67.6 below "expert" expectations of 68.2, and down from a near record 70.6, it seems that the full pain will only be felt yet. The reason: "In response to special questions about the Japanese disaster, panelists reported minimal impact." They will. Guaranteed. Which means that upcoming weakness is simply deferred from April to May or later, pushing back the "imminent" rebound further into the future, yet guaranteeing a major miss in Q2 GDP. Our call continues to be for a Q2 GDP of at or below 2%. Yet the most insight as usual comes from the survey respondents, where we find this pearl of wisdom which probably explains everything that is wrong with the economy: "Companies that are very profitable still behaving as if bankruptcy is around the corner". And why wouldn't they: when in the history of human events has central planning every worked?

Among the changes, the bulk of which were declines: Production declined from 74.2 to 70.0, New orders dropped from 74.5 to 66.3, Backlogs dropped from 69.6 to 62.4, Inventories dropped from 60.5 to 53.5, Employment dropped from 65.6 to 63.7, Prices Paid declined from 83.4 to 81.8, buying policy plunged from 37.8 to 27.4, and Capital Equipment dropped from 120.6 to 102.4.

From the release:

Business Activity:

  • NEW ORDERS and ORDER BACKLOGS eased following historic highs early in the year;
  • Breadth of EMPLOYMENT expansion relaxed from a 27-year high.


  • Lead times reported for PRODUCTION MATERIEL and CAPITAL EQUIPMENT decreased while lead times for MRO SUPPLIES remained firm.

Survey responses:

1.    Companies still skittish and intense pressure from boards / stock market. Companies that are very profitable still behaving as if bankruptcy is around the corner.
2.    We are continually finding and hiring qualified new employees. We are also adding new equipment. The backlog is now over our levels prior to the recession.
3.    It appears suppliers are finding more creative ways to institute price increases with the most recent being ---unprecedented surcharges.
4.    Prices on plastic resin and cotton continue to press suppliers to the point where they are increasing prices or refusing business - first time I've seen this in years.
5.    First price increase to customers due to the commodity pressure on steel, copper and aluminum.
6.    Due to our company using products with an asphalt base, we expect to see continued increases throughout the construction season.
7.    All costs are increasing. Chemical costs are at recent time highs.

8.    Capacity issues at suppliers were exacerbated by the tragic events that unfolded in Japan.
Much concern regarding our ability to grow as the limited availability of many raw materials propagates. Inadequate capacity at the feedstock levels of most concern due to the lengthy and expensive work required to ramp it up. This bottleneck causes obvious issues throughout the entire supply chain. A couple of years of constrained growth could be good in the long term but can also cause panic in sectors already straining to stay afloat while hoping for a sustained economic recovery.
9.    Commercial Banking activity is picking up. Commercial Real Estate valuations stabilizing. 10. ?New orders fell slightly this month but hopefully we can get some of the backlog through engineering. Quote requests continue strong.

11. Where did all the orders come from?

12. Finished the 1st quarter ahead of plan. Have our fingers crossed for the second quarter.

13. Record month in March.

14. The economy in our markets are still hot!?