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Economy in Brief

Local NAPM Reports Show Gains in December, but Include Weak Components
by Carol Stone* December 29, 2006

Industrial activity generally improved in December, according to local Purchasing Managers' surveys released December 28 and 29. In New York, a broad index covering both manufacturing and services edged higher after a strong rise in November. Chicago's index managed to climb back above 50% after a surprising dip in November. In Cincinnati, there was a marginally positive reading indicating less growth than in recent months. Finally, in Milwaukee, conditions show fairly steady growth with the December index equal to the averages for 2005 and 2006.

In New York, the business conditions index gained 0.4% in December, following 3.8% in November. It stands 25.2% ahead of a year ago. This index is a linked version of the "current conditions index", which slowed in the month from 82.5% to 53.6%. The survey also indicates some retreat in the outlook measure for six months out; it was 62.5%, down from 70% in November. However, this still compares favorably with readings over the last couple of years.

Chicago's survey recovered most of its November decline, and importantly got back above the 50% breakeven level, reaching 52.5. This remains low, though, compared with all but one other month since the spring of 2003. Several components also remain below 50%, notably order backlogs, employment and delivery speeds. So despite a gain in new orders, the Chicago survey indicates some uncertainty about the overall strength of demand.

Two other cities in the industrial midwest show uneven performances. In Cincinnati, whose results are not seasonally adjusted, the general business production index eased to +6 in December from +15 the month before and +11 in the year-ago month. For the year as a whole, this index began strong at +47. but has ratcheted lower since then. New orders also seem to be tapering down, with December's -12 the weakest value since the middle of 2002. The price situation in Cincinnati looks better, however, with price increases for commodities, services and equipment all slowing noticeably during Q4.

In Milwaukee, growth looks steadier, if not faster. The general business index for December is 58, up from 56 the previous month and holding in the range of about 54 to 65 that has prevailed since the recovery from the last recession. However, some uncertainty appears here too, as order backlogs and supplier lead-times have both dropped below 50%.

So manufacturing conditions in the industrial heartland look favorable, but they are not on a firm base. We'd surmise that last summer's expensive energy and surging commodity prices, along with, until lately, expectations of further interest rate increases imposed considerable caution into managers' strategies. Recent easing of these price advances may allow planners to be less defensive early in the New Year.

Note that the Chicago PMI data are contained in the USECON database. The other cities are included in Haver's SURVEYS database.

Purchasing Manager Surveys Dec 2006 Nov 2006 Oct 2006 Dec 2005 2006 2005 2004
New York Index, SA, 1996=100 443.4 441.6 425.3 354.2 402.7 340.1 294.3
Current Conditions, 50%+=Growth 53.6 82.5 58.6 53.6 64.9 57.5 61.6
Chicago, SA, 50%+=Growth 52.4 49.9 53.5 60.8 56.8 60.4 62.8
Cincinnati, NSA, Net Balance 6 15 28 11 26 23 36
  New Orders -12 20 20 0 24 18 32
Milwaukee, SA, 50%+=Growth 58 56 64 66 58 58 60
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