We got another dire picture of American manufacturing on Monday.
MNI’s Chicago purchasing manager’s index (PMI), an indicator of business manufacturing and overall business activity in the Midwestern US, plunged from 56.2 to 48.7 in November.
According to Bloomberg, economists had estimated that the business barometer fell to 54 from 56.2 in October.
A reading below 50 indicates contraction.
New orders fell to the lowest level since March, and this decline put the index into contractionary territory for a sixth time this year.
Orders is a leading indicator of things to come, which suggests potential downsizing and layoffs may be due for businesses in the Midwest.
“The significant decline in the Barometer is indicative of the see-saw pattern of demand seen in 2015, with output and orders shifting in and out of contraction,” said Alyce Andres-Frantz, MNI Chicago bureau chief, in a release. “Barring a significant bounce back in December, the decline in November suggests that activity during the final quarter of the year may well decelerate.“
The Midwest has not been spared by a broad slowdown in manufacturing this year that economists have attributed to weakening demand for US exports, the stronger dollar, and lower commodity prices.
“We care about the Chicago PMI because it is highly correlated with the [nationwide] manufacturing ISM [report on business],” Deutsche Bank’s Joseph LaVorgna and team wrote to clients ahead of the release, with emphasis. “Over the past 10 years, the correlation coefficient between the Chicago PMI and the manufacturing ISM is a robust 0.86, which tells us that both series tend to trend closely together.”
And while recent manufacturing PMIs suggested that the worst may be over for manufacturing, that call may be premature since data like this show its performance is still seesawing.
“That the Barometer was unable to hold on to the gain seen in October is a reflection of the erratic pattern of demand seen throughout 2015,” said MNI chief economist Philip Uglow. “The slowdown in the global economy, the strong dollar and decline in oil prices have all impacted businesses this year to varying degrees.”