Why did the Chicago PMI take its largest dip since October 2008?

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About ISM

The Institute for Supply Management (or ISM) was the first supply management institute in the world. ISM aims to enhance the value and performance of procurement and supply chain management practitioners and their organizations worldwide.

As part of its mission, ISM releases monthly reports that gauge economic activity in the manufacturing sector. These include the Chicago Business Barometer, which summarizes current business activity. This report is also known as the Chicago Purchasing Managers’ Index, or Chicago PMI. Another of these key releases is the ISM Manufacturing Index.

Chicago PMI

 

Chicago PMI Index

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 show an expanding business sector.

The report serves as a proxy for overall manufacturing health in the U.S. economy.

The report is commonly referred to as “the Chicago PMI.” But the report’s official name is ISM Chicago. PMI is short for “Purchasing Managers’ Index.”

The July reading plunged 10 points

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The Chicago PMI for July was released on Thursday, July 31. The reading for July plunged 10 points with the index at 52.6—only slightly above the break-even 50, but way below the 62.6 recorded in June. The dip is the largest decline since October 2008. New orders, backlog orders, and production all declined. The report also cited geopolitical concerns as a negative for the month.

Investors’ takeaway

Industrial 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 good indicators with respect to the industrial sector. The performance of these funds can give you vital clues to the current and future performance of the manufacturing sector.

ISM Manufacturing

Let’s move on to assess another of ISM’s key manufacturing sector reports—the ISM Manufacturing Index.

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