Earlier this morning, we learned that the Chicago PMI climbed to 51.6 in December. This was slightly ahead of economists expectations.The gain was largely driven by a jump in the new orders sub-index.
However, the employment index collapsed to a three-year low.
Should we be worried?
TD Securities’ Eric Green thinks we should take a deep breath and think about what happened.
“That may look worse than it really is, however,” he writes. “The drop in employment reflects the prior weakness in new orders in November and to a lesser degree owing to the fiscal cliff which breeds well understood uncertainty.”
Indeed, the exact opposite of what happened in this month’s employment index could happen in an upcoming month.
“With the bounce back in new orders, employment will also bounce back, and ultimately everything flows from new orders which is now comfortably back above its 6m average of 50.8,” writes Green. “Fade the weakness in employment and treat the release in much the same way as the headline would suggest which is better, not worse.”