The Chicago Manufacturing PMI dropped to 35.4 in May, signaling significant economic distress and confirming recessionary fears.

As a stark reminder of how rough things are for the Chicago area manufacturing business, the Chicago Manufacturing PMI dropped to 35.4 in May. It’s important to note that this number, which is the lowest since May 2020, is not just a blip on the economic radar; it’s a clear sign of trouble. This is the sixth month in a row that the economy has shrunk, which is a pattern that has generally been linked to recessions.

We need to look back 45 years to understand how serious it is. This low of a reading has always meant that the country is in or close to a recession. We last saw a number this bad during the height of the COVID-19 outbreak and before that, during the Great Recession of 2008. When industry goes down for this long and to this degree, it’s often a sign that the economy as a whole is about to go down. We can’t say enough about how important this is. Manufacturing is an indicator of how the economy is doing because it shows how businesses feel, what consumers want, and how healthy the supply line is. When it fails, it shows that there are weaknesses in the system that could spread to other areas.

Next, important ISM (Institute for Supply Management) PMI statistics for May in manufacturing and services will be made public this week. Economists and investors alike pay close attention to these reports because they give them information about the overall health of the U.S. economy. The factory data is getting a lot of attention because it shows the health of the economy more quickly than the GDP numbers. If these other indicators also show big drops, it could mean that the economy is going to get even worse.

It’s very important to know what these signs mean and how they work together. The purchasing managers’ index (PMI) is made up of five main indicators: new orders, inventory levels, output, supplier deliveries, and the job market. Whenever the PMI falls below 50, there is a contraction. The contraction gets worse as it falls below 50. Not only is a number of 35.4 below 50, it’s also a sign of serious economic trouble.

Interestingly, formal announcements of a recession happen a long time after the fact. The National Bureau of Economic Research (NBER), which is in charge of declaring recessions, usually needs a lot of time to look over data and make sure it is correct before making a statement. In the six most recent recessions, it took an average of 234 days after the GDP data was released to say that the recession had begun. For example, it wasn’t until a full year after the Great Financial Crisis of 2007–2009 that it was officially called a recession. A lot of the time, the economy has already been in bad shape for a while by the time we get official proof.

Economic analysis is a cautious process, which is why the statement is taking so long. The NBER is waiting for clear, long-term data that shows a big drop in activity across the whole economy. To do this, we need to look at more than just GDP. For example, we need to look at jobs, industrial production, and wholesale-retail sales. Because they use such a strict method, the NBER’s statements usually back up what many people already think based on leading indicators like the PMI.

The message is clear for people and companies trying to make their way through these tough economic times: don’t wait for official statements to take action. It’s easy to see the trends. Manufacturing is having a hard time, and if the ISM data backs this up, it will add to the evidence that a recession is coming. Being ready is important. Businesses should get ready for tougher times by potentially rethinking their inventory, capital spending, and staffing levels. People might think about protecting their finances by cutting costs they don’t need to and saving more.

In conclusion, the drop in the Chicago Manufacturing PMI to 35.4 is a very strong sign that the economy is about to get worse. The steady drop in manufacturing over the past six months can’t be ignored while we wait for the ISM statistics. Because the NBER takes a long time to declare a recession, the economy will probably have already been through a lot of hard times by the time the word “recession” is publicly used. Being aware of these warning signs early on can help you be more ready for what looks like it will be a tough economic time ahead, which could lessen its effects.

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