Chicago PMI Remains In Contractionary Territory Despite Mild Improvement

Source: Daily FX

Chicago PMI proved to be slightly better than expected, as the index rose to 48.3 from 48.2 versus forecasts for a drop to 47.5. However, PMI held below the pivotal 50 mark for the third consecutive month, suggesting that business activity continues to contract. Likewise, a breakdown of the index isn't entirely encouraging as new orders slipped while the employment component plunged to a reading of 35.3 from 44.6, which bodes ill for this Friday's non-farm payrolls. Furthermore, it is interesting to view the production and inventory components in light of this morning's Q1 GDP release. Q1 GDP grew 0.6 percent, due primarily to a pick up in inventory levels, which is something we've seen reflected in this round of Chicago PMI. Meanwhile, production jumped as well, suggesting that businesses are overproducing for current demand levels, which is leading inventories to build.