Business conditions in Chicago worsened this month according to the latest PMI reading, which came in at 47.8 in March vs. 49 in February. Any reading below 50 indicates contraction. The Chicago PMI has been straddling the 50-point mark of contraction for almost a year, and the latest reading was the ninth consecutive month with a reading under 50. Conditions may have been pushed down further due to the worsening economic climate created by the coronavirus pandemic.
- Chicago PMI came in at 47.8 in March vs. 39 expected and 39 the month before.
- Two out of five indicators saw decline, namely production and new orders.
- Some businesses saw worse conditions due to the outbreak, while others benefited from it.
Overall, the Chicago PMI does not reflect a major disruption in business conditions this month, with the PMI performing much better than expected. Production slipped into contraction in March following a gain in February. While some businesses benefited from customers buying supplies in bulk to prepare for a potential quarantine or shortages, other businesses saw reduced sales. Overall, new orders slipped 7.9% in March. On a monthly basis, order backlogs rose to the highest level since December 2019, but the index dropped to the lowest quarterly level since Q3 2009, down 9.9% from the month before.
Including today's MNI Chicago PMI, regional surveys in March imply ISM Composite PMI of 45.7 while global politics imply a Composite PMI of 50.7 pic.twitter.com/xGJgk7oGeN
— Not Jim Cramer (@Not_Jim_Cramer) March 31, 2020
Inventories fell deeper into contraction territory, hitting the lowest level since October 2009. On a quarterly basis, inventories hit the lowest level since Q4 2009. Supplier deliveries rose to the highest point since November 2018, while employment saw a modest uptick of 0.3% after the drop seen in February. Delays in deliveries from China and other countries around the world were reported among survey respondents. Prices rose to the highest level since December 219, up 7.2%. A majority of respondents expect new orders to be at the same level as they are now in three months time.
Gold prices have seen little reaction to the news, trading in the low $1600 range. Spot gold last traded at $1,610.11/oz, down -0.73% with a high of $1,622.50/oz and a low of $1,597.54/oz. The market sentiment toward gold and safe-haven assets is bearish compared to last week, with risk-on sentiment cautiously increasing among traders. Stock markets saw improved overnight performance, although Q1 2020 will mark the worst quarter the DOW has seen since 2008.
A coronavirus vaccine in development may be available by early 2021, and this news may have contributed to risk-on sentiment as traders look to the future. News that China’s manufacturing PMI outperformed expectations has also likely had an impact on price action in today’s session.