By Yingcong (June) Fu
The Chicago Business Barometer jumped 7.1 points to 57.4 in February, the highest since January 2015, according to a report released by the Institute for Supply Management in Chicago on Tuesday.
This reading beat the average estimate of 53.49 by 35 economists polled by Bloomberg. According to ISM, a reading above 50 indicates economic expansion while one below 50 indicates contraction.
“The sharp bounce back in optimism to a level not seen in over two years and growth in output at the highest level for over a year offers an upbeat picture of the U.S. economy,” said Shaily Mittal, senior economist at MNI Indicators, in the report.
This not only shows optimism in the economy, but a certainty under the new administration, said Andrew Opdyke, economist at First Trust Portfolios L.P. in Wheaton, in an interview. “With the current administration, they still need to set in stone what some of their policies are going to be. But I think the general sentiment from the industry between lowered regulations and lowered tax rates is a positive outlook moving forward.”
The increase reflects the rise of four of the five components, comprising new orders, production, order backlogs and employment. Supplier deliveries, which accounts for 15 percent, declined to the lowest level since last October.
The Chicago Business Barometer, also known as the Chicago Purchasing Managers Index, is a monthly survey of company managers in both manufacturing and non-manufacturing firms in the Chicago metropolitan area.
Preceding the release of the national PMI, the regional index is seen as a leading indicator of the national economy.
It is a predictor of the U.S. gross domestic product as well, as three components–new orders, order backlogs and employment–are closely related to portions of GDP, Opdyke said. “If there’s a surge in new orders coming in, they may buy equipment to build out the new orders. And those purchases would flow into the GDP number,” he added, noting that backlogs and employment impact the expectation of GDP for similar reasons.
The forecast of the Chicago Business Barometer depends how the Trump administration “solidify” their policies, Opdyke said. “But based on what we’ve seen so far and in the talk out of the administration, we think the PMI is going to move higher this year.”