Strong Chicago PMI, drop in jobless claims below 400,000 point to upbeat start to 2011

The Chicago PMI, which measure activity among manufacturers in the Midwest, jumped from 62.5 in November to 68.6 in December, the best showing since July 1988 and the fourth month in a row the survey detected accelerating activity.

A reading of 50 suggests manufacturing activity in the region is neither expanding nor contracting.



Adding to the very strong report, production and new orders, which rose to a very impressive 74.0 and 73.6, respectively, now stand at their highest levels in over five years, while order backlogged are surging.

Further, employment also touched a five year high, while prices paid increased from 70.7 to 78.2, signaling that manufacturers are being forced to paid higher prices for raw materials amid improving worldwide demand.

Comments from some of those survey also paint a brighter 2011 and include :

1. 2010 was a very, very good year, 2011 looks just as strong thru Q1! 
2. The level of business keeps increasing and the resources to handle are not available.
3. Our backlog is increasing. Supplier lead times are still too long.
4. Employee turnover is starting to increase, this along with continued downsizing and increased outsourcing is driving consultant hiring.
5. Lending market slowly thawing but only for strong (financially) borrowers. Weak borrowers are still finding it nearly impossible to find a competitive source of reliable funding.

No doubt about it, the Chicago PMI tends to be a bit volatile when compared to the ISM Manufacturing Index, which takes a snapshot of the national picture.  But with the Philly Fed Business Activity Index reaching a six-year high in December, along with strong numbers from Chicago, it looks as if manufacturing is growing nicely and is set to support the broadening recovery.

Jobless claims finally tumbled below 400,000

In the meantime, weekly initial jobless claims fell a steep 34,000 to 388,000, the best reading since July 2008.  The 4-week moving average dropped a sizable 12,500 to 414,000.  I provide details at Examiner.com.



Difficulties in adjusting for seasonality, especially during the year-end holidays, may be responsible for the unexpectedly large decline; however, Bloomberg News reported that the Labor Department believes the data are good, and it was able to accurately adjust for seasonal variations.

If this proves to be true, then the drop below 400,000 is significant and is one of the strongest signals yet that economic activity is picking up.  Moreover, it suggest that an improving labor market may not be far behind.

Consequently, the new year may finally offer some much needed economic relief to the many who grew weary of the recession and the slow recovery long ago.