Chicago PMI plunges in December

The Chicago PMI plunged to 42.9 in December from 48.7 in November, lower than forecast and consensus expectations (50.0). The December number is the third in the past four months that has indicated outright contraction of Chicago-area manufacturing, and it is the lowest reading since August 2009.

The December decline was driven by a precipitous drop in the new orders index (38.8, previous: 44.1). The production index also moved lower, with its level now indicating contraction (46.7, previous: 50.9). The employment index fell to 46.8 (previous: 51.6). The order backlog index fell to 29.4 (previous: 46.6).

Although prices paid continued to fall in December, the pace of the decline moderated somewhat (47.3, previous: 42.2), indicating slightly less deflationary pressures from Chicago-area manufacturing. In a modest bright spot, the inventories index rose modestly (50.3, previous: 48.3), moving back above neutral.

The Chicago PMI, formerly a reliable leading indicator of the national ISM indices, has experienced heightened volatility this year. While the negative reading in December suggests a sizable decline in Chicago-area activity.

"We do not see the data as necessarily reflecting broader national trends. Nonetheless, most indicators of manufacturing activity have weakened in recent months, and we look for stagnant US manufacturing activity next year as the lagged effects of a much stronger dollar continue to weigh on the sector", says Barclays.