Following September's bounce, October's Chicago PMI plunged to 5-month lows. The 50.4 print is a four standard-deviation miss with new orders sliding, production tumbling, but prices paid surging to the highest since Nov 2014. So, stagflation looms as inflationary pressures build but economic growth outlooks decline.
The bounce from June to September... is over...
As MNI reports, the latest data marked a weak start to Q4, with the three-month trend softening to 52.1 in October from 53.8 in the three months to September.
The Barometer decline was led by a slowdown in Production, which fell 5.4 points to 54.4, giving up most of the gain seen last month but remaining above the 2016 average. New Orders also subtracted from the Barometer, falling to the lowest level since May. Order Backlogs increased slightly, but failed to jump out of contraction territory, where they have been over the past three months. Employment saw a smaller rise, edging back above the 50-breakeven level and recovering some of the lost ground experienced in the previous month. Meanwhile, Supplier Deliveries fell to the lowest level since June.
There was evidence of a pick-up in inflationary pressures at the factory-gate. Prices Paid rose to the highest level since November 2014, following the recovery in the oil price and panellists also reported higher prices for steel and plastic products. Moreover, suppliers have been pushing for price increases in recent months and some of these pressures appeared to have materialised in October.
And as Lorena Castellanos, senior economist at MNI Indicators, explains...
"A key takeaway from the latest survey was the pick-up in Prices Paid to a nearly two-year high. Inflationary pressures are on the rise, which is one of the metrics the Federal Reserve has been waiting for to increase rates. However, economic growth ahead, as read by the October Chicago Business Barometer, looks very disappointing. Hopefully, it doesn't mark the start of a downward trend,"
Or put another way - the Chicago PMI report screams stagflation:
- "inflationary pressures on the rise"
- "economic growth looks very disappointing"