Chicago PMI Manufacturing Up; Case-Shiller Home Prices Down

Conflicting data show housing market splitting off from broader economic recovery

In a sign that the U.S. economic recovery is indeed underway, Chicago’s manufacturing activity in November rose to its highest level since April—surprising analysts, who had expected it to fall—but the leading measure of home prices nationwide showed foreclosures continued to weigh down growth in the third quarter.

The Chicago purchasing managers index (PMI) released on Tuesday showed a business barometer reading of 62.5 in November, its third month in a row to post a reading above 60. The Standard & Poor’s/Case-Shiller home price index, on the other hand, declined 2% in the third quarter after rising 4.7% in the second.

In November, the Chicago index showed production reaching its highest level since February 2005, at 71.3, while new orders improved to a level not seen since 2007, at 71.3. Employment tallied a sixth month of growth, with demand at 56.3 compared to October’s also strong 54.6. Overall, expansion is now in its 14th month.

“Chicago PMI provides us further confirmation that the manufacturing sector remains one of the thriving pockets in this economy,” said Anthony Karydakis, senior economist with Commerzbank in New York.  “The number is the highest since April, when we had a reading of 63.8, and that was prior to the onset of a soft patch in late spring. We have recouped all of the erosion that we suffered during the soft patch, and it shows that the manufacturing sector has not only recovered but is holding up very well in absolute terms.”

Historically speaking, November’s number is at an elevated level for the series, Karydakis noted. During the heyday of the economy in 2004-05, the series ranged in the low to mid 60s, and it is now back in that range. While the Chicago index covers only one region, he added, Wednesday’s nationwide PMI release by the Institute for Supply Management will offer a broader view of where the U.S. economy is headed, which is higher—except for home prices.

The S&P/Case-Shiller index shows that nationally, home prices were 1.5% below their year-earlier levels. In September, 18 of the 20 metropolitan areas covered by S&P/Case-Shiller Home Price Indices and both monthly composites were down. While housing prices are still above their spring 2009 lows, the end of the tax incentives and still active foreclosures appear to be weighing down the market, according to the S&P Case-Shiller release.

“It’s the slowest year-on-year increase, which is representative of the overall dismal state of the housing market,” Karydakis said, calling the erosion of the housing sector a “paradox” in relation to the recovery. “The massive backlog of unsold homes as well as foreclosures are likely to continue over the next six to nine months as the economy rebounds further.”

Read about October’s ISM at

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