inventories may be falling sharply - underproducing vs. demand
bondtalk.com
bondtalk.com
CHI PMI: MARCH DATA POST 10YR LOWS; SOME URGE CAUTIOUS READ
13:15 EST 03/30
By Mark Kuiper and Agnes Crane
NEW YORK (MktNews) - Chicago purchasers reported Friday that the pace of business activity contracted dramatically in March to lows not seen in over 10 years. And, while the data prompted some players to lower their national NAPM forecasts, other market economists urge a cautious interpretation of the Chicago data.
The Chicago business barometer fell to 35.0 in March from 43.2 in January, well below a Market News International estimate of 44.0 and its lowest level since March 1982. A year ago the business barometer was 56.4.
"It's nothing good, and soft everywhere," said William Griggs, managing director of Griggs & Santow, Inc. about the weak data. "Previous data has suggested a more modest contraction, and we were looking for 40 or 41 in the index number ... nothing like this," he said.
However, Griggs urged market players to view the data with some caution, adding "The data are weaker than we expected, but Chicago PMI can fool you," and its dangerous to extrapolate Chicago into a national interpretation.
Aubrey Lanston economist Bill Quan agrees and pointed that while some analysts may be lowering their estimates for NAPM "we are keeping our forecast for the overall NAPM at 41.0 (down .9) because the NAPM seasonal factors appear to be more reasonable than those of the Chicago PM."
He said part of the weakness in Chicago PMI is "due to seasonal adjustment problems surrounding the overall index in March."
Other economists, however, beg to differ and began to rethink their NAPM forecasts almost immediately following the Chicago PMI.
Bill Dudley, an economist with Bear Stearns said the Chicago indices continue to indicate weakness in manufacturing and will mirror results in Monday's expected national NAPM release.
"It's a regional number ... but I think people will be marking their NAPM numbers down for Monday," based on today's Chicago data, he said.
The prices paid index posted 59.6 with inventories at 41.5 while the employment Index was 32.3. The employment index was 50.4 in March 2000.
The Chicago production index fell substantially to 34.8 from 43.1 in February. A year ago the index was 62.0.
Order backlogs also set historical lows of 30.2 versus 40.1 in February. A year ago Order backlogs were 49.8
And, new orders slowed yet again, falling to 35.1 from 43.0. A year ago the index was 58.9.
Supplier deliveries were 40.2 in March, falling from 47.0 in February.
Jeff Palma, U.S. economist with UBS-Warburg said the Chicago PMI numbers "show that the manufacturing sector, specifically in the Chicago region, is really weak and there are no signs of recovery in sight." Additionally, Palma believes the worse-than-expected Chicago numbers may foreshadow a greater than expected deterioration in the national figures.
The National Association of Purchasing Management (NAPM) will release data on the national manufacturing industry on Monday.
Palma expects calls for an intermeeting interest rate ease will begin to get louder after the release of the NAPM numbers and could get to a fevered pitch if the employment numbers are weak. He expects the employment headline number to come in at 0, while the employment rate will rise only 0.1%.
Should national NAPM undergo a dramatic decline on Monday, specifically an index number below 40, Griggs would expect the Fed to conduct an intermeeting rate cut.
And, according to at least one economist, the NAPM headline index could very well dip below 40.
Ian Morris, an economist with HSBC places far more weight on the Chicago PMI data, explaining that since 1992, the monthly correlation between the NAPM and the Chicago PMI has been about 85%. At 35, Morris maintains, the March Chicago index is suggesting that NAPM could be about 39.1,
"The standard error is 2.1, suggesting that there is a 68% probability that the outcome will be between 37.1 and 41.3. This compares to the consensus of 42.5 before the Chicago release. If true, an inter-meeting rate cut is back on the table," he said.
Morris attaches a 70% probability of a rate cut in April. |
