Why manufacturing activity in Dallas and Chicago picks up

Market Realist

Key economic releases this week could impact your ETF investments (Part 3 of 7)

(Continued from Part 2)

Dallas Fed Manufacturing Index

The Dallas Fed conducts a monthly survey of manufacturers in Texas regarding their operations in the state. Participants are asked their opinion on changes in certain manufacturing indicators over the previous month and their expectations for activity six months into the future. The break-even point for each index is zero with positive numbers indicating growth and negative numbers reflecting decline. The Dallas Survey gives a detailed look at Texas’ manufacturing sector, how busy it is, and where it’s headed.

The latest reading came out on Monday, June 30. For the month of June, the production index saw a jump from the 11 index points in May to 15.5 in June. The business activity index also soared, moving from the eight index points reported in May to 11.4 in June. Manufacturing is surely picking up in the U.S.’s second largest manufacturing state.

The performance of Industrials exchange-traded funds (or ETFs) like the SPDR Industrial Select Sector Fund (XLI), which has companies like General Electric Co. (GE) and Boeing Co. (BA) in its portfolio, the Vanguard Industrials Index Fund (VIS), and the iShares Dow Jones U.S. Industrial Sector Index Fund (IYJ), serve as a good indicators with respect to the industrial sector.

Chicago PMI Index

The Institute for Supply Management (or ISM)-Chicago compiles a survey and a composite diffusion index of business conditions in the Chicago area to reflect the overall economic activity in the area. Readings above 50 indicate an expanding business sector. The report serves as a proxy for the health of the overall manufacturing health of the U.S. economy. The report is commonly referred to as the Chicago PMI (or purchasing managers’ index), although the official name of this report is ISM-Chicago.

The Chicago PMI for June, released on Monday, June 30. It came in quite strong with the index at 62.6 far above break-even 50, although there was a slight drop from the 65.5 recorded in May. The June reading came in few points below the 64 consensus prediction for the month. That said, the reading still came in far above break-even 50 reflecting strength of growth in general activity in the Chicago economy.

Continue reading the next section in this series to learn how the U.S. manufacturing sector performed in June, according to indicators published by the ISM and Markit Economics.

To understand the effect PMI readings have on markets, please read Why do key purchasing managers’ index readings move markets?

Continue to Part 4

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