No real progress indicated by Chicago Purchasing Managers Index for October.
The Chicago Purchasing Managers Index is also known as the ISM-Chicago Business Survey, the MNI Chicago Report and the Chicago Business Barometer. Regardless of what you choose to call it, the index made a negligible advance from 49.7 in September – its lowest level in three years – to 49.9 in October. Economists had been expecting an increase to 51.7. August’s reading was 53.0. As was the case last month, five of the seven Business Activity measurements posted declines. Employment dropped to a 33-month low. Capital equipment purchases dropped from a 17-month low in September to a 26-month low in October. What’s Behind the Numbers: A Chat With John Del Vecchio
From the report:
The Chicago Purchasing Managers reported October’s Chicago Business Barometer idled, up just 0.2 to a still contractionary 49.9. Business Activity measures reflected weakness in five of seven indexes, most notably as the rate of expansion in Production and Employment slowed while New Orders stalled near neutral and Order Backlogs remained in contraction.
- EMPLOYMENT: 33 month low;
- INVENTORIES: slipped into contraction;
- PRICES PAID: inflation slowed a bit;
- CAPITAL EQUIPMENT: 26 month low;
- PRODUCTION MATERIAL and MRO SUPPLIES: lead times remain above long term averages.
Also on Wednesday, the Mortgage Bankers Association (MBA) released its Weekly Mortgage Applications Survey. The MBA’s Refinance Index decreased for the fourth consecutive week. For the week ending October 26, mortgage applications decreased 4.8 percent. Financial Stocks Hold Up the Market So Far Wednesday
From the report:
The refinance share of mortgage activity decreased to 80 percent of total applications from 81 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 4 percent of total applications.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.65 percent from 3.63 percent, with points decreasing to 0.39 from 0.45 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate increased from last week. The 30-year fixed contract rate is at the highest level since mid-September.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 3.94 percent from 3.85 percent, with points decreasing to 0.36 from 0.42 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week. The 30-year jumbo contract rate is at the highest level since mid-September.
The major ETFs expected to respond to the Chicago Purchasing Managers Index and the Weekly Mortgage Applications Survey are:
Industrial Select Sector SPDR ETF (NYSEARCA:XLI) +0.47%
Materials Select Sector SPDR ETF (NYSEARCA:XLB) -0.33%
SPDR KBW Mortgage Finance ETF (NYSEARCA:KME) -0.65%
Consumer Staples Select Sector SPDR Fund ETF (NYSEARCA:XLP) +0.11%
iShares Dow Jones US Financial ETF (NYSEARCA:IYF) +0.36%
Bottom line: October brought us the second consecutive downbeat Chicago Purchasing Managers Index, which remained well below its August level. The Chicago PMI served as a reminder that although the economy is recovering, it has a long way to go and its progress is intolerably slow.