I occasionally get emails from readers accusing me of immediately positing bad news and totally ignoring good news.

Actually, most days I have no idea what I will even write about. I get emails from all over the world and I wish I had time to write everything up. But I don’t.

Some days I struggle to find anything to write about. On other days, I run out of time. For example, on Tuesday, I wanted to report on the Chicago PMI – bad news. There was so much other news I failed to get it in.

Shortly after midnight (Thursday morning), instead of getting in a report on the Chicago PMI, I decided to post How Americans Came to Die in the Middle East.

This morning, the New York ISM report was horrendous.

Let’s finally take a look at both the Chicago and New York ISM reports, starting with Chicago, the much better report.

Chicago PMI Contracts 6th Time in Last 12 Months

Please consider May Chicago Business Barometer Down 1.1 Points to 49.3.

The MNI Chicago Business Barometer fell 1.1 points to 49.3 in May from 50.4 in April, the lowest level since February and the sixth time it has been in contraction over the past 12 months.

Following the decline in April, the latest results show activity stumbling in the second quarter, following only moderate growth in Q1. Barring a solid revival in June, Q2 could be the weakest outturn since Q4 2015 given the April-May average of just 49.9.

The Barometer’s decline was led by a 6.6 point fall in Production and was accompanied by a mild setback in New Orders, with both falling below 50. While these were the only components that fell between April and May, out of the five components which make up the Barometer, four of them were in contraction. Only Supplier Deliveries was above 50.

Inventories tumbled by 11.7 points to 37.9 in May, the lowest since November 2009 and the seventh consecutive month in contraction. The weakness in inventories could signify uncertainty about future business growth. Supporting this, a special question posed to the Chicago panel in May showed that 68.7% of respondents did not plan to increase business investment over the next six months.

Chicago Business Barometer

Chicago PMI 2016-06-01

Chicago PMI Comments

Chief Economist of MNI Indicators Philip Uglow said, “While expectations are that growth in the US economy will bounce back in Q2, the evidence from the MNI Chicago Report shows activity weakening from an already low level. Firms ran down stocks at
the fastest pace for more than 6 years in May, and while a rebuilding over the coming months could support output, the underlying message appears to be that businesses are not confident about the outlook for growth.”

Chicago ISM Chart

Chicago PMI 2016-06-01A

Chart from Bloomberg Econoday, blue trendline by Mish.

Good News

Relatively speaking, that was the good news.

Yet, despite inventory drawdowns, unless Chicago has far better than the national ratios, the inventory-to-sales ratio is extremely high.

Bear in mind, unlike most ISM reports, the Chicago PMI is a mix of both manufacturing and services. That makes matters worse given the emphasis on services.

Shocking Downturn in New York ISM

ISM New York reports Red Flags – Business Activity Contracts at Fastest Pace in Seven Years.

New York City business activity contracted at the fastest pace in seven years, according to the survey taken by the Institute for Supply Management-New York.

Current Business Conditions fell nearly 20 points to 37.2 in May, the weakest reading since April 2009 during the Great Recession.

Labor contracted for the eighth time in the last nine months, while purchase volume declined by the most in seven years. Employment fell to 44.6 in May. Quantity of Purchases dropped to 37.5 in May, the weakest outturn since July 2009. Persistent weakness in the Employment index has coincided with a rising NYC unemployment rate. The losing streak for the Employment index began in September 2015.

New York Region Business Activity

NY PMI 2016-06-02A

New York Region Employment

New York PMI 2016-06-01A

New York Region Purchases

New York PMI 2016-06-01B


I keep getting emails about my 2015 recession call. But I see no reason to change the call. GDP and employment are both hugely lagging indicators.

Indeed, GDP is frequently revised years after the fact.

Curiously, the NBER, the official arbiter of recessions, once called a recession after it was over.

GDP Revisions

We have huge GDP revisions in July related to construction spending.

On January 4, 2016, I reported Government “Processing Error” Sinks Housing Reports for Entire Year.

The gist of that report is the government will revise GDP for a decade, in July. The bulk of the revision will add to GDP in 2014 and I believe subtract from GDP in 2015.

I made my estimates on how big the 2015 GDP subtraction will be in Diving Into the Revisions: Construction Spending Revised Lower 7 Consecutive Months! 2015 GDP Will Decline vs. Estimates: By How Much?

GDP Reports Are Not Reality

At best, GDP reports are hugely lagging indicators. At worst they are total distortions of reality.

Construction Spending In Play Again

Curiously, construction spending is in play again this month. Please consider my June 1, analysis Retail Hiring Slowdown Coming Up: Construction Spending Plunges 1.8%.

March construction spending was revised from a prior reported 0.3% to 1.5%, but the good news stops there. April construction spending declined a whopping 1.8%, the most since January 2011.

Year-Over Year Numbers

Construction spending 2016-06-01

The above table from Census.Gov.

The volatility in this series is shocking, but many of the year-over-year numbers look very good.

Homebuilding did improve hugely, but we already knew that from the massive jump in new home sales.

On the negative side, the downbeat trend in business investment reflects on future hiring that will not happen.

Commercial spending is up 5.0% year-over-year. However, this month’s reading of -3.6% is foreboding.

Walmart, Target, and the fast food places will not hire for stores they are not building.

With minimum wage hikes scaling up to $15, and with retail profits collapsing, just why do retailers or fast food restaurants want to build new stores?

To understand how this all ties together, please see Retail Department Store Carnage: Amazon to Blame? Mish 12-Point Summation

It appears the Fed will be hiking rates smack into hiring slowdown (assuming of course the Fed really does hike).

I wish to reiterate two of my comments

  1. “Walmart, Target, and the fast food places will not hire for stores they are not building.”
  2. “It appears the Fed will be hiking rates smack into hiring slowdown (assuming of course the Fed really does hike).”

For those primarily watching Illinois, note that despite a Massive Jump in New Home Sales, the Midwest region managed a 4.8% decline in sales.

Mike “Mish” Shedlock