An index released monthly on the last business day of the month to which it refers that indicates how vibrant regional manufacturing activity is. An index value of 50 or higher indicates increasing busi-ness activity; below that indicates decreasing activity. The index breaks out readings for production, new orders, order backlog, inventories, prices paid, employment, and supplier deliveries. The PMI is a timely look at the strength of manufacturing industry in the Chicago Federal Reserve regions, which comprise Illinois, Iowa, Indiana, Michigan, and Wisconsin. The new orders and orders backlog indices are useful in predicting future production activity.
The Chicago PMI draws much of its influence from the fact that it is released one day before the ISM Index, which used to be called the NAPM index, and is produced by the Institute for Supply Management. The Chicago PMI index, is perceived by market traders to be a good leading indicator for the ISM, which typically affects the financial markets. Shortcomings of the PMI include the fact that it is only an opinion survey and relies on people’s perceptions, not data. It also doesn’t capture any technology improvements or increasing production efficiencies that might alter expectations and actual results.