MNI Indicators Says Government Shutdown Doesn’t Slow Business Activity in Midwest

Economists likely did a double-take as the Chicago Business Barometer, a measure of business activity in the Midwest U.S., ballooned to its highest level since March 2011, contradicting views that the U.S. economy was slowing to start the fourth quarter.

The headline index increased to 65.9 in October from 55.7 in September, marking the largest one-month increase in more than three decades.  Readings above 50 indicate expansion in the factory industry. The consensus of economists was for a rise in PMI to 55.0.

It was also the fourth straight month of the index rising, a feat that has only happened three times in the last 10 years.

The MNI Chicago Report is published by MNI Indicators, part of Deutsche Börse Group, in partnership with the Institute for Supply Management-Chicago.  It covers activity in Illinois, Indiana and Michigan.  While watched by the markets, the report is more volatile and gets less emphasis than the national manufacturing report from the Institute for Supply Management, which is scheduled to arrive tomorrow.  Economists expect the ISM Manufacturing Index to slip to 55.0 for October from 56.2 in September.

Double-digit gains were reported in new orders, production and order backlogs.  New orders rose to 74.3 from 58.9, hitting their highest level in nine years, following gains in August and September.  Production expanded to 71.1 from 58.8, its highest level since February 2011.  Order backlogs climbed out of contraction territory from 46.7 in September to 61.0 in October, representing the best level since March 2011, while the employment segment improved to 57.7 from 53.2, its highest mark since June 2013.

On the down side, growth in inventories, prices paid and supplier delivery times slowed modestly compared to September.

“The government might have shut down but Chicago area companies powered ahead in October as orders and production surged,” commented Philip Uglow, Chief Economist at MNI Indicators.

The 16-day partial government shutdown to start October and ongoing gridlock in Washington have dampened consumer sentiment and sparked concerns about fourth-quarter growth for the U.S.  Information from the Labor Department on Thursday showed that initial jobless claims dropped less-than-expected last week, adding to worries of an economic slowdown.

CNBC’s Rick Santelli commented immediately after the MNI report was released that the figures were “stratospheric,” suggesting that a closer examination being required to understand why the large jump that varied so greatly from economist predictions.

The markets did not respond to the report this morning, but has crept its way back upwards after trading much lower before lunch.  The Dow Jones Industrial Average is only down by 6 points as of 1 PM ET, while the S&P 500 has is even and the Nasdaq has swung into the green, gaining 5 points.