Friday We'll Get Some Big Time Data On What Really Happened To The Economy During The Shutdown

It's "PMI Day", when reports come out for countries around the world about the health of their manufacturing sectors for October.

What happened to the US economy in October is a crucial question, since A) The economy may have already started slowing going into the month and B) we had the government shutdown/debt ceiling crisis. So how much of a setback will we have seen.

On Thursday we got a weird clue. The Chicago PMI report, which measures the strength of the manufacturing sector in the Chicago region came in ridiculously strong.

The surge was the fastest pace in over 30 years, with strong gains in new orders and total output.

Tomorrow we get the national ISM report. Analysts expect a reading of 55.0, down a bit from 56.2.

For some further context on this and today's strong Chicago number, here's Mike O'Rourke of JonesTrading:

The larger question is how much faith investors should have in this report. As we noted earlier, it seems too good to believe especially considering the Government shutdown. On the positive side, the Milwaukee PMI was also strong, posting its best reading in nearly a year and a half. Both of these reports bode well for the more important ISM Manufacturing report, which will be released tomorrow. The challenge is that these reports have held little sway with the Fed and their improving strength throughout the summer has not materialized into payroll gains. As we have noted in the past, these purchasing manager surveys are sentiment surveys and referred to as "soft" data as opposed to the hard data like payrolls, retail sales, etc. As we look forward to tomorrow's ISM, a good report will be a welcome development but we do not expect it to influence Fed policy. That being said, we do expect it to reinforce the trend we witnessed today. On the other hand, a weak number will only reinforce the expectation that tapering is a late Q1- early Q2 2014 event.

For more on today's Chicago PMI, see here >