Wednesday, June 30, 2010

Chicago Purchasing Managers Index: Demand For Oil Dispersant Is Outstripping Supply

The Chicago Purchasing Managers Index (or Chicago Business Barometer) measures business activity in the Midwest.  The Chicago Business Barometer is an extremely timely index as it comes out right before the ISM manufacturing index (which comes out tomorrow).  On a month-to-month basis this index moves about 60% of the time with the ISM manufacturing index with a correlation close to 90% in the size of the change.

ISM-Chicago, an affiliate with the Institute for Supply Management, questions about 200 purchasing managers from Illinois, Indiana and Michigan on business activity in their districts.  Answers received are compiled and a diffusion index is produced based on a weighted average of the five sub-component indexes:
1) new orders - 35%
2) production - 25%
3) order backlogs - 15%
4) employment - 10%
5) supplier deliveries - 15%

How does one go about interpreting this index?
The diffusion index functions like the ISM manufacturing survey index:
A reading above 50 indicates expansion, while one below 50 hints at contraction

Here is what the latest report has to say:
"The Chicago Purchasing Managers reported the CHICAGO BUSINESS BAROMETER indicated the breadth of expansion showed little change, and chalked up a ninth month of growth."
The index read 59.1 for June as compared to 59.7 in May, which means that although business is still growing it is growing at a slower rate than last month.

In a look at how the Gulf Coast Oil spill has impacted the Midwest economy, one of the general comments at the end of the report noted that demand is outstripping supply for the chemicals used to create oil dispersant:
"There has been an increase in order time for products which are purchased to make finished products. This is related to the chemical industry and the requirements for many components used in finished fluids for oil dispersants used in the Gulf Coast Oil spill." 


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