Today, the ISM released the Chicago PMI for September—the barometer for business activity in the Chicago region. The reading showed that business activity in the region contracted. The Chicago PMI reading was 47.1 in September—compared to 50.4 in August.
Chicago PMI falls unexpectedly
The reading was also substantially lower than the expectation of 50.5. On a sequential basis, the Chicago PMI reading was the lowest level since the same quarter in 2009. The manufacturing PMI in the US and China have remained muted amid the raging trade war. The Chicago PMI is an important leading indicator for the US economy. Notably, the Chicago PMI also predicts the ISM manufacturing PMI. Meanwhile, the Chicago PMI has shown the highest correlation with output growth among all of the regional manufacturing surveys.
In a separate release, the Dallas Fed reported the Texas Manufacturing Outlook Survey data today. At 1.5, the general business activity index suggested a deceleration in business activity in Texas in September compared to the previous month.
US stocks advance
Despite the muted Chicago PMI and Dallas Fed business activity index, the markets have risen today due to trade hopes. The S&P 500 Index (SPY) rose 0.6% at 12:04 PM ET. China’s Alibaba (BABA) rose 1.6% at the same time. Alibaba fell sharply on September 27 due to delisting concerns. Today, Alibaba recovered as US Treasury officials eased the delisting concerns.
China manufacturing PMI on the rise
While the Chicago PMI pointed to a contraction, China’s manufacturing PMIs rose in September. Although the official PMI is still in the contraction zone, it rose by 0.3 points to 49.8. The PMI data released by Caixin/Markit showed improved manufacturing activity with a reading of 51.4 compared to the expectation of 50.2. However, the non-manufacturing PMI, a gauge of service sector activity, fell in September to 53.7—lower than the expectation of 54.2.
Is Trump failing in the US-China trade war?
A fall in the key regional PMI indicates that President Trump’s trade war tactics aren’t good for the US. Job creation in the US has slowed down. The companies leaving China aren’t coming back to the US. Also, the US is alienating its allies in the process. The trade war is hurting China and the rest of the world. The trade war is a “no-win” situation!
Boeing and the Chicago PMI
Boeing (BA) fell 1.1% at 12:50 PM ET. Although Boeing does most of its business outside Chicago, it’s headquartered in Chicago. Boeing influences the Chicago PMI. With Boeing still waiting for the 737 to be back in the skies, the Chicago PMI showed a contraction in new orders and output.