Chicago PMI: A Fast Read on US Business

Key Takeaways

• The Chicago PMI business barometer is a diffusion index where 50 separates expansion from contraction.
• It blends five components: production, new orders, order backlog, employment, and supplier deliveries.
• The index covers manufacturing and non-manufacturing firms, unlike pure factory surveys.
• It prints just before the national ISM data, so it can hint at where ISM is heading.

What It Is

The Chicago PMI, officially the Chicago Business Barometer, is produced by ISM-Chicago and distributed through MNI in the monthly MNI Chicago Report. It surveys purchasing and supply executives at firms in the Chicago region and asks whether key business measures rose, fell, or held steady versus the prior month.

Unlike the national ISM manufacturing index, the Chicago barometer includes both manufacturing and non-manufacturing companies. That broader mix is one reason it tracks the overall US economy fairly closely.

The Intuition

Purchasing managers see demand shifts early. They order materials before production ramps up and cut orders when sales soften. A survey of these managers captures the pulse of activity faster than official output data.

The barometer condenses several of these signals into one number. Because it is released near the end of the month, often just before the national ISM report, investors use it as a sneak peek. A weak Chicago print raises the odds of a weak ISM number, and markets often start pricing that in immediately.

How It Works

The headline barometer is built from five weighted component indexes, each a diffusion index of its own.

Production         0.25
New Orders         0.35
Order Backlog      0.15
Employment         0.10
Supplier Deliveries 0.15

Each component is the share of firms reporting an increase plus half the share reporting no change, a standard purchasing manager index construction. The weighted blend is then seasonally adjusted so months can be compared cleanly.

The result sits on a scale centered at 50. Above 50 signals expansion in the region; below 50 signals contraction. The further from 50, the broader the move. New orders carry the heaviest weight at 0.35 because fresh demand leads the cycle.

Worked Example

Suppose the components come in at production 55, new orders 60, order backlog 48, employment 45, and supplier deliveries 52. Apply the weights:

(55 x 0.25) + (60 x 0.35) + (48 x 0.15) + (45 x 0.10) + (52 x 0.15)
= 13.75 + 21.00 + 7.20 + 4.50 + 7.80
= 54.25

A barometer of 54.25 signals modest expansion. New orders are strong, which is encouraging because demand leads output. But employment is below 50, a soft spot worth watching. A trader would read this as growth that is real but not broad based.

Common Mistakes

1. Confusing it with the national ISM. The Chicago barometer is regional and mixes manufacturing with services. ISM publishes separate national manufacturing and services indexes. They are related but not the same number.

2. Reading the level as a percentage. A reading of 54 does not mean activity grew 54% or 4%. It is a diffusion score where 50 is breakeven. The distance from 50 shows breadth, not size.

3. Over-weighting one print as an ISM forecast. The Chicago index hints at ISM but does not predict it reliably every month. The two can diverge because their samples and coverage differ.

4. Ignoring the components. A headline near 50 can hide a strong new orders reading next to weak employment. The mix tells you more than the single number.

5. Forgetting it is one region. Chicago is a major industrial hub, but it is still one metro area. Treat the index as an early indicator, not a national verdict.

Frequently Asked Questions

What is the Chicago PMI business barometer in simple terms? It is a monthly score of business conditions around Chicago, where above 50 means most firms are growing and below 50 means most are shrinking.

How does the Chicago PMI business barometer affect investment decisions? Because it prints just before the national ISM report, traders use it to adjust bets on growth-sensitive assets early. A surprise miss can move stocks, bonds, and the dollar ahead of the bigger release.

What is a real-world example of the Chicago PMI business barometer? If new orders read 60 and employment reads 45, the weighted barometer might land near 54, signaling growth driven by demand but held back by hiring.

How can investors use the Chicago PMI business barometer effectively? Look past the headline to the five components, especially new orders, and watch the trend over several months rather than reacting to one print.

How is the Chicago PMI business barometer different from the ISM PMI? The Chicago barometer is regional and covers both factories and services. The ISM PMI is national and reports separate manufacturing and services readings.

Sources

1. ISM-Chicago. "Chicago Business Barometer & Research." https://chicago.ismworld.org/news-publications/reports/research-survey/
2. MNI. "Chicago Business Barometer (aka Chicago PMI): Publication Calendar." https://www.mnimarkets.com/chicago-business-barometer-aka-chicago-pmi-publication-calendar
3. MNI. "MNI Chicago Business Barometer Suggests Weaker ISM Manufacturing PMI." https://www.mnimarkets.com/mni-chicago-business-barometer-suggests-weaker-ism-manufacturing-pmi
4. Trading Economics. "United States Chicago PMI." https://tradingeconomics.com/united-states/chicago-pmi

Disclaimer

This article is educational content only and is not financial advice. Nothing here is a recommendation to buy, sell, or hold any security. Consult a licensed advisor before making investment decisions.