What Is the Chicago PMI? A Key Economic Indicator

The Chicago Purchasing Managers’ Index (PMI) is a regional economic indicator that offers insights into business activity within the Chicago area. This monthly survey focuses on the manufacturing and non-manufacturing sectors of the region, providing a snapshot of their health. It is released by the Institute for Supply Management (ISM) Chicago and is considered an important gauge of economic conditions. The Chicago PMI helps to set the stage for understanding broader economic trends.

Key Components of the Index

The Chicago PMI is compiled from a survey of purchasing and supply management executives. These executives provide data on categories of business activity. The main components include New Orders, Production, Employment, Supplier Deliveries, and Inventories.

• New Orders: Gauge future demand for goods and services, reflecting the volume of new business received.
• Production: Measures current output levels of goods, indicating the pace of manufacturing activity.
• Employment: Tracks changes in workforce levels, showing whether businesses are hiring or laying off employees.
• Supplier Deliveries: Measure the speed at which suppliers deliver materials; slower deliveries often indicate higher demand.
• Inventories: Reflect the levels of raw materials and finished goods held by businesses, providing insight into supply chain management and demand expectations.

Understanding the Index Value

The components are aggregated into a single index number using a diffusion index methodology. This calculation involves taking the percentage of respondents reporting an improvement in a category and adding it to half the percentage reporting no change. The resulting index number provides a clear indication of economic sentiment.

A reading above 50 points indicates expansion in business activity. Conversely, a reading below 50 points signals contraction. A reading of exactly 50 points suggests no change or stagnation. The further the index number is from the 50-point threshold, the stronger the rate of change—indicating a more robust expansion or a more significant contraction. Month-over-month changes in the index are also closely monitored for trend analysis, providing insights into the regional economy’s momentum.

Significance as an Economic Indicator

The Chicago PMI is closely watched by economists, investors, and policymakers as a leading economic indicator. It provides early insights into future economic activity before other data become available. Its regional focus can offer an initial look at trends that may later be reflected in national economic data.

Movements in the Chicago PMI can foreshadow trends in the broader ISM Manufacturing PMI, offering a preview of national manufacturing health. The index assesses the health of both the manufacturing and non-manufacturing sectors, providing information for economic analysis. Changes in the Chicago PMI can influence market sentiment and inform policy decisions. Its detailed information about specific components aids in understanding economic shifts.