<font color=brown>Here's another data point that suggests the economy might be slowing down. The guy in the article tries to make light of it but the index had just moved up in March or April.......to have it move down so quickly is not good. As a result, the markets are moving down.
The more important national PMI comes out tomorrow.<font color=black>
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Chicago Purchasers Index Falls the Most Since 1974 (Update3)
June 30 (Bloomberg) -- An index of growth for Chicago-area manufacturers and other businesses fell this month by the most since 1974, reflecting a slowdown in orders and production, a private report showed. In May, the gauge reached a 16-year high.
The National Association of Purchasing Management-Chicago said its regional index declined to 56.4 in June from the previous month's reading of 68. The June figure was less than the lowest estimate in a Bloomberg News survey of economists.
``You can't accelerate forever once you hit your top speed,'' said Kevin Logan, a senior market economist at Dresdner Kleinwort Wasserstein in New York. ``We are still in a growth mode, but the intensity of the pick up is slowing down.''
A reading greater than 50 signals growth and the index has averaged 62.6 so far this year compared with 54.6 in 2003. More companies reported paying higher prices than at any time since 1988, evidence of the recent acceleration of inflation that may prompt Federal Reserve policy makers to lift interest rates today.
Joshua Shapiro, chief economist at MFR Inc., said he expects manufacturing to grow at a 6 percent annual rate in the third quarter after an estimated 9 percent in the previous three months.
The purchasers group's index of prices paid rose to 84.5 this month from 80 in May. Fed policy makers are forecast to raise their benchmark interest rate a quarter percentage point to stem an acceleration of inflation that's accompanied stronger consumer and corporate demand. Central bankers have held the overnight bank rate at 1 percent, the lowest since 1958, for a year.
Treasury Notes
U.S. Treasury notes rose for a second day in three on optimism the Fed will stick with a plan to raise rates at a ``measured'' pace. The 4 3/4 percent note due in May 2014 rose 3/8 point, pushing down the yield 5 basis points to 4.64 percent at 10:35 a.m., New York time.
Economists and investors watch the Chicago report for clues about the strength of U.S. manufacturing. The drop in the index was the biggest since an 11.8-point decrease almost 30 years ago. Of the 10 largest U.S. counties, only Los Angeles has more manufacturing jobs than Cook County, which includes Chicago and many of its suburbs, according to Labor Department figures.
The Federal Reserve Bank of Chicago says the region produces 40 percent of the nation's motor vehicles, 35 percent of the nation's steel and almost half of its farm equipment.
Forecast
The Chicago index was forecast to decline to 65, according to the median of 56 economists in a Bloomberg survey. An index of U.S. manufacturing, due tomorrow from the Institute for Supply Management, is expected to fall to 61.5 from 62.8 in May, according to the median forecast in a separate survey. That index reached a two-decade high of 63.6 in January.
The Chicago survey's employment index fell to 53.6 this month from 54.8 in May. The production index dropped to 53.9 from 71.1. The new orders index fell to 56.8 from 74.4. The inventories index rose to 56.4 from 52.6. The index of order backlogs fell to 53.9 from 56.9. A measure of delivery times declined to 66.6 from 68.8.
``We are certainly seeing a very strong market,'' said Alex Lidow, chief executive of International Rectifier Corp., an El Segundo, California-based maker of semiconductors used to help power electronics, in an interview Monday. ``The biggest surprise in the second half of the year will come from the strength we're beginning to see in personal computer upgrades.''
Illinois Tool Works
Glenview, Illinois-based Illinois Tool Works Inc., which makes plastic car parts, laminate flooring and welding equipment, raised its second-quarter and full-year profit forecasts earlier this month. The improvement came as customers bought more welding equipment, fasteners, industrial adhesives and other products.
Of 140 economists surveyed by Bloomberg News, 132 predict the Federal Open Market Committee will raise the fed funds rate today by a quarter point; three predict a half-point increase and five say the Fed will remain at 1 percent. An announcement is expected around 2:15 p.m. Washington time.
The overnight bank-lending rate may climb to 2 percent by year- end and 3 percent a year from now, according to the median forecasts in a separate Bloomberg survey conducted earlier this month. In a Bloomberg survey in May, economists at the largest bond-trading firms predicted the Fed won't stop until the rate reaches at least 4 percent at the end of 2005 or longer, with the range spanning 2.5 percent to 5 percent.
``Interest rates continue to be historically low,'' said Scott McClellan, White House spokesman, at a briefing with reporters. The economy continues to ``grow stronger,'' he said.
Manufacturing Employment
The economy is forecast to expand 4.6 percent this year, the most since 1984, according to the median estimate of economists polled earlier this month.
The U.S. economy expanded from early April through early June with ``broad-based'' manufacturing growth and ``modest increases'' in consumer prices, the Fed said in its latest survey of regional economic conditions released earlier this month. ``Manufacturing activity increased in all Federal Reserve districts,'' said the survey. Central bankers use information from the report to help formulate their strategy on interest rates during their meeting.
Manufacturers added 32,000 workers to payrolls last month, the most since a 143,000 jump in August 1998 and the fourth straight increase, figures from the Labor Department showed earlier this month. The manufacturing workweek rose to 41.1 hours from 40.7 in April and overtime rose by six minutes to 4.7 hours, the most since July 2000.
Factories are projected to have created an additional 30,000 manufacturing jobs this month, according to the median estimate in a separate Bloomberg News survey ahead of Friday's employment report from the Labor Department. The fifth consecutive gain would be the longest stretch of increases since an eight-month string concluded in March 1998.
To contact the reporter on this story:
Carlos Torres in Washington ctorres2@bloomberg.net.
Last Updated: June 30, 2004 10:57 EDT
quote.bloomberg.com |
