Understanding the Chicago Purchasing Managers Index (PMI)

What is the Chicago PMI?

The Chicago PMI is a monthly diffusion index that measures manufacturing activity in the Chicago area. It is conducted by the Chicago Business Barometer, also known as the Chicago PMI, and is a key indicator of economic conditions in the region.

Diffusion Index

A diffusion index is a measure of the overall direction of a group of individual components. In the case of the Chicago PMI, it shows the percentage of manufacturing firms that are reporting increases in activity, compared to the percentage that are reporting decreases.

How is the PMI Calculated?

The Chicago PMI is calculated based on a survey of manufacturing companies in the Chicago area. Companies are asked a series of questions about their current activity, including production, new orders, and employment. The responses are then used to create a composite index that ranges from 0 to 100.

• A reading above 50 indicates that manufacturing activity is expanding.
• A reading below 50 indicates that manufacturing activity is contracting.
• A reading of 50 indicates that manufacturing activity is unchanged.

Importance of the PMI

The Chicago PMI is a closely watched economic indicator because it provides insights into the manufacturing sector, which is a major component of the US economy. The PMI can be used to predict future economic growth, inflation, and other economic trends.

Recent Trends

In April 2024, the Chicago PMI dropped to 37.9, indicating a contraction in manufacturing activity. This decline was driven by decreases in production, new orders, and employment. The weak PMI reading suggests that the manufacturing sector in the Chicago area is facing headwinds, potentially due to factors such as supply chain disruptions, rising costs, and a slowdown in global demand.