Stagflation Signals Flashing: Chicago PMI Drops, New Orders Slide As Prices Spike

Following November's exuberant spike to Jan 2015 highs, December saw Chicago Purchasing Managers lose some Trumpian hope as the index slid from 57.6 to 54.6 with new orders, production, and inventories all fell. It seems the 'hard' industrial production and durable goods data was right after all and the sentiment-fueled 'soft' surveys once again over-reached.


Stagflation once again looms, as MNI reports, the December decline was led by a slowdown in New Orders, which fell 6.7 points to 56.5, giving up most of the November gain that had left it running at the fastest pace since June. Production also subtracted from the Barometer, ending 2016 at the lowest level since October, while Order Backlogs moved back into contraction. Employment held firm, remaining below 50 for the second month in a row, while Supplier Deliveries was the only component to gain ground in December.

The Inventories Indicator moved back into contraction, sitting below the break-even mark for the eighth time this year, with some firms reluctant to add to their stock levels as we approach the end of the year.

Meanwhile, inflationary pressures at the factory-gate edged higher having eased slightly last month. Prices Paid rose 1.2 points to 58.0 in December, the indicator's second highest outturn of 2016. Panellists in our survey reported that the prices of metals, plastics, and transportation costs were all increasing with another commenting that "prices are headed higher".

This month's special question asked panellists how they expected the new administration's policies to impact their business in 2017.

Over half of total respondents expected their business to prosper, with many citing anticipated tax reforms and deregulation as positive for business. However, 40% thought it would have no impact and 9% said they anticipated a negative impact on their activities.


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