Chicago's PMI hits the dead-even 50.0 mark in August, indicating no change in business activity from July and a bottoming for the recession in the region. The results, along with indications from other regional surveys, point to similar no-change 50 readings for this week's ISM national reports. Chicago's report showed a huge nearly 10-point jump in production to 52.9 in a reading that indicates output actually rose in August. The rise in output put stress on the supply chain as deliveries slowed, to 54.9 for a 5 point rise. Orders are moving into backlogs with the index showing one of the biggest gains of any component, up nearly 14 points to 45.8. To meet production needs, Chicago businesses drew down their inventories, to 27.5 vs. July's 25.4, and have yet to show any indication that they intend to rebuild their inventories. New orders, which point to future production, increased strongly in August, to 52.5 for a 4-1/2 point gain. The gain in production and gain in new orders have to yet significantly slow the pace of layoffs as the employment index shows severe month-to-month contraction at 38.7, still nevertheless a nearly 2-1/2 improvement from July.
Prices paid are the last piece of the report and they point to strength, at a no-change 50.0 vs. a long run of deep contraction in the mid 30s and high 20s. Cash-for-clunkers no doubt helped this report, from auto-sector manufacturers to auto dealers (this report includes respondents from all available sectors). Today's results, which are positive but not surprisingly positive, haven't been able to help the stock market which continues to move lower in reaction to the 7 percent overnight drop in Shanghai.