Chicago Business Barometer Expanded: A Good Start to 2016
US GDP Grew at Slow Rate in January with Lower Consumer Spending
Chicago business barometer rose to 55.6 in January
With a sharp increase in new orders and production, the Chicago business barometer, or the PMI (Purchasing Managers’ Index), rose 12.7 points to 55.6 in January 2016. That compares to 42.9 in December 2015. The reading is way above the neutral level of 50.0 and led to a 2.4% increase in the SPDR Dow Jones Industrial Average ETF (DIA) on January 29.
The Industrial Select Sector SPDR ETF (XLI) rose 2.7% on January 29. Industrial stocks such as 3M (MMM), Boeing (BA), and Honeywell International (HON) rose 2.5%, 5.3%, and 1.8%, respectively, that same day.
Broad-based gain in January’s business activity
In January, four out of the five components increased. New orders increased to 58.8, gaining 20.2 points. It was followed by a double-digit gain in production, pushing it above the neutral level in January.
Order backlogs increased in January but still contracted for the 12th consecutive month. Although employment increased moderately, it remained in contraction.
Supplier deliveries were the only component that declined in January. It fell 4.5 points to 49.2. The decline offset the expansion seen in December due to an issue with logistics rather than a rise in demand.
New orders increased in January, but manufacturers were seen as cautious about holding inventories. With a decline in commodity prices and crude oil, the price level continued to remain in a disinflationary trend.
After declining in November and December, the Chicago PMI expanded in January 2016. Although it marks a positive start to 2016, the reading needs to be above the neutral level for quite some time to ensure strength in the economy. A continued increase may help the economy expand further with an increase in business optimism and capital spending.
In the next part of this series, we’ll see how consumer sentiment is growing in the US economy.
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