* Overall business index dips to 49.9, lowest since April 2003
* Order backlog, employment and supplier deliveries all below 50
* Prices paid index falls to 60.2, 18-month low
* Worst vendor performance in more than five years
* Correlation to ISM sharply deteriorated
The Chicago PMI slipped nearly four points to 49.9 in November from 53.5 in October. This compared to IFR's consensus estimate of 54.5 and IFR's own forecast of 54.0. Whispers of 49.0 lifted the bond market and jolted the dollar market a few minutes before the official release time. Another dealer had 49.9 ahead of the time stamp.
The number was below expectations and below the psychologically significant 50 line but it was just a tenth below 50 and heavily tied to the ailing auto industry. The Philly Fed index did much the same a few months ago before jumping to 5.1 in November. Still, the market fears the Chicago barometer bodes ill for tomorrow's ISM index. But while there was a 92.5% correlation between the ISM and Chicago PMI from January 2000 to August 2004, the link has deteriorated to 48.5% from September 2004 to present. So far this year, that correlation is a mere 4.1%.
The production index eased nearly five points to its lowest in 43 months. The new orders index, now down 15.3 points since September, rolled to a 15-month low. The inventories index fell almost 10 points after rising a net 18.5 points over the preceding three months.
The index on employment fell by 7.6 points to 49.4, dipping below 50 for the first time since April. The prices paid index fell for a fifth straight month and is now at an 18-month low. This index has fallen by 25.4 points from a year ago.
Manufacturing activity has retreated significantly but much of the malaise is due to autos and allied industries. That can't be easily dismissed but it is unlikely to tip the US economy into recession. Reserve judgment on the health of the factory economy until Friday's ISM report.
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