Chicago PMI Rebounds Sharply, But Factory Contraction Continues
December reading surpasses economist forecasts, yet extends the manufacturing downturn in the region to 25 consecutive months.
A key barometer of Midwest manufacturing activity posted a surprising rebound in December, though it failed to break a prolonged streak of contraction that has plagued the sector for over two years.
The Chicago Purchasing Managers' Index (PMI), released Tuesday, jumped to 43.5, handily beating economists' consensus estimates that were centered around 39.8. The reading was a significant improvement from November's 36.3, suggesting a moderation in the steep downturn that has defined the region's industrial economy.
Despite the better-than-expected headline number, the report marks the 25th consecutive month the index has remained below the 50-point threshold that separates growth from contraction. This extended period of weakness highlights the persistent headwinds facing goods producers, including elevated interest rates and shifting consumer spending patterns away from goods and towards services.
The Chicago data offers a granular look at a manufacturing-heavy region, but it presents a mixed picture when viewed against national indicators. The more-encompassing S&P Global US Manufacturing PMI registered 51.8 in its latest reading, indicating continued, albeit slowing, expansion for the sector as a whole. However, that same report noted a concerning development: new orders fell for the first time in a year, a potential sign of future weakness.
Conversely, the Institute for Supply Management's (ISM) national manufacturing report has shown contraction for more than a year, with its November reading coming in at 48.2%. The forthcoming national ISM data for December will be closely watched by investors and policymakers to clarify whether the resilience seen in the Chicago report is an isolated event or the beginning of a broader stabilization.
Beneath the surface of the national data, there are signs of mounting pressure. Price gauges have indicated that costs for manufacturers are rising, while unsold inventories have reportedly swelled at a rate not seen since the 2007-2008 financial crisis, according to S&P Global Market Intelligence. This combination of rising costs and slackening demand could squeeze profit margins and temper industrial activity moving into the new year.
While the sharp December rebound in the Chicago Business Barometer may offer a glimmer of hope that the regional manufacturing slump is bottoming out, the broader economic landscape remains challenging. The sector's path forward will likely depend on the Federal Reserve's interest rate trajectory and a potential resurgence in consumer and business demand for manufactured goods.