Those who were looking at the JPY monkeyhammering at 9:42 spotted the exact moment the November Chicago PMI number was released early to MarketNews subscribers, and also knew precisely that the number would be a beat. Sure enough, at 9:45 when the number was released for broad distribution, this was confirmed because while the headline number dropped from last month's epic 65.9 to 63.0, it was still a sizable beat of expectations of 63.0, with the Employment number rising from 57.7 to 60.9 the highest since October 2011. However, one look at the internals shows that not all was well. In fact, with New Orders dropping from 74.3 to 68.8, production sliding from 71 to 64.3 and backlogs down from 61.0 to 59.8, the forward looking metrics all dipped so it was all up to that old faithful channel stuffer - Inventories - to fill the gap. And fill the gap it did, by soaring from 48.0 to a whopping 61.1, the highest number since September 2006!
Just as the Durable Goods goods number suggested, the inventory buildup is the only thing that is keeping manufacturers busy. Selling said inventory at a profit (especially with Prices Paid surging from 56.7 to 63.7), or investing in future production capacity, not so much.
And the disconnect between forward indicators and the inventory surge:
The November Chicago Business Barometer softened to 63.0 after October’s sharp rise to a 31-month high of 65.9. November’s slight correction came amid mild declines in New Orders, Production and Order Backlogs after double digit gains in the prior month.
Despite November’s weakening, the Barometer remained well above 60 for the second month, pushing the three month moving average to the highest level since November 2011.
Chicago area purchasers continued to report healthy expansion in New Orders and Order Backlogs, albeit at a slower rate, as well as a lengthening in Supplier Delivery Times.
Employment was up for the second consecutive month, reaching the highest level since October 2011, and the first time above 60 since February 2012.
Inventories exploded 13.1 points to 61.1, moving out of contraction for the first time since February and posting the highest reading since September 2006. With expectations for higher demand, firms underwent a major stock rebuild.
Commenting on the MNI Chicago Report, Philip Uglow, Chief Economist at MNI Indicators said, “The Barometer might be down in November, but this was another impressive month with companies reporting firm growth”.
“Having kept inventories lean for so long, a pick-up in demand has led to a sharp rise in stock building among the companies in our panel. And to handle the latest production and new orders boost, companies are hiring at the fastest pace for two years,” he added.