Market Overview

Chicago PMI Worse than Expected, but Still Expanding

The Chicago PMI is based on data compiled from purchasing and supply executives in the Chicago-area. The Index measures new orders, backlog of orders, new export orders, imports, production, supplier deliveries, inventories, customers' inventories, employment and prices. It establishes a consensus of economic health for Chicago-area manufacturing.

The Chicago PMI for April decreased to 56.2 from the 62.2 reading in March. This also comes in less than the anticipated reading of 60.0. This is essentially bearish for the manufacturing sector, and for general economic health in the United States.

The number is sent out by the ISM-Chicago three minutes before the official release time to paid subscribers, so subscribers can take advantage. However, Twitter has killed that advantage. The number is all over Twitter as soon as the number is released to these paying subscribers, so it diminishes most of the value the early release has.

According to the report, the April Chicago Business Barometer decreased for a second consecutive month. After five months above 60, the Chicago Business Barometer fell to 56.2, a 29 month low. The index has remained in expansion since October 2009.


ACTION ITEMS:

Bullish:
Traders who believe that the Chicago PMI is a leading indicator for the US economy, you might want to consider the following trades:
  • Short general industrial companies like Illinois Tool Works (NYSE: ITW) or Caterpillar (NYSE: CAT) as these companies will benefit for increasing industrial production.
  • Also, short Consumer Discretionary companies like Target (NYSE: TGT) or the Consumer Discretionary ETF (NYSE: XLY)
Bearish:
Traders who do not believe that the manufacturing survey is a leading indicator for the general US economy, you may consider alternative positions:
  • Long Consumer Staple companies like Procter & Gamble (NYSE: PG) and Colgate (NYSE: CL) because even if the economy is struggling, people still need to buy staple products like shampoo and toothpaste.
  • Also, long big-ticket appliance makers like Whirlpool (NYSE: WHR), because shares could be oversold.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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