Highlights from briefing.com
An unbelievable plunge to 49.2 in August Chicago PMI index (-14.3 pts).
Key Factors
Record sized plunge leaves index in a contractionary sub 50 level -- the first since April '03 after reaching a 17 yr high in March.
New orders (30% weight) plunged an astounding 23 points to 46.5 -- presumably off the highs in oil prices.
Production fell to 56.2 from a nose bleed 70.5 in July as it followed orders.
Employment fell in line to 51.7, March stood at a high 66.
Prices paid rose to just 62.9 and doesn't reflect the pricing fear we are assuming caused the orders plunge.
Big Picture
There really is no clear explanation for the 14.3 pt August plunge to a negative 49.2 read in August. Oil price concerns are very real but even the prices paid index rose only modestly to 62.9. Prior to August strong gains continued to lift the index to a 17 year high of 69.2 in March before falling off sharply and rebounding in July. The strength of business investment which had turned up the heat (furnaces) in manufacturing softened with the end of capital investment tax incentives as inventories have been drawn down to satisfy near term demand. The manufacturing sector moves in sharper cycles than the overall economy and the regional measures move in even shorter, more volatile patterns. Strong business investment demand will rebound given large positive cash flow, profits, low financing rates and strong business activity.
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