Inventory Grows in Economic Liftoff Anticipation

The Chicago PMI reading came in just shy of the Bloomberg Econoday Estimate of 54.9.

The headline for August looks solid, at 54.4 for the Chicago PMI, but the details look weak. New orders and production both slowed and order backlogs fell into deeper contraction. Employment contracted for a fourth straight month while prices paid fell back into contraction.

Lifting the composite index are delays in shipments which point to tight conditions in the supply chain. Inventories rose sharply in the month and the report hints that the build, despite the weakness in orders, was likely intentional. But strength is less than convincing and this report suggests that activity for the Chicago-area economy may be flat going into year end.

ISM Chicago

Let's dive into the Chicago PMI Report for further details.

While New Orders and Production softened in August, both remained above their 12-month averages and significantly up from the depressed levels seen between February and June. Part of that resilience in Production and New Orders was due to stock growth as companies built inventories at the fastest pace since November 2014. Feedback from companies was mixed although our assessment is that the overall positive tone of the survey is consistent with a deliberate stock-build in anticipation of stronger demand in Q4.

Despite the latest gain, the labour component remained in contraction for the fourth consecutive month and was still close to June’s nearly 5-1/2 year low. The Employment component has been relatively weak in recent months and the survey suggests it’s unlikely to see a strong pick-up in the short-term.

Responding to a special question asked in August, 63% of our panel said they didn't plan to expand
their workforce over the next three months.

Economic Liftoff Anticipation

Once again, everyone hopes for a "second half liftoff" that perennially struggles to arrive as strong as expected.

This year, I highly doubt 2% for the entire year. 1% growth might be an achievement. Nonetheless, businesses stockpile in anticipation liftoff.



Anticipation is the word (and song) of the day.

Link if video does not play Anticipation: Carly Simon

Mike "Mish" Shedlock