In its endless search for the most up-to-date signpost on the economy's direction, the bond market has alighted on a minor regional report that has sent markets reeling upon release.
The report, by the Purchasing Management Assn. of Chicago, provides a snapshot of local business conditions in the month just ended and has the distinction of arriving before all others.
In the first indication of the economy's performance in May, the Chicago group said Thursday that its index rose to 56% from 54.2% in April. A reading above 50% points to an expanding economy.
Despite the regional nature of the report, bond traders took it as a sign that the economy was picking up, easing the pressure for lower interest rates.
Treasury bonds fell on the news, with the benchmark 30-year U.S. bond down about a fifth of a point.
The Commerce Department on Thursday released a factory orders report showing a downturn in the manufacturing economy, but the data was for April--ancient history as far as the financial markets are concerned.
The key to the Chicago report, economists said, is that it provides the first indication of manufacturing activity for the month just ended.
The index reflects conditions of about 200 industrial businesses in Northern Illinois and Northwest Indiana.
It is "one measure of what is going on right now and comes out early, which is very, very good," said Samuel Kahan, chief economist at Fuji Securities Inc. in Chicago.
The nearly 50-year-old report gained international stature last year when its monthly release date was fixed ahead of a similar but unrelated national survey, prepared by the National Assn. of Purchasing Management.
The National group's index will be released Friday, the same day as the Labor Department releases the influential U.S. employment report for May.
Some economists say the Chicago report has had an uncanny ability to call the most recent shifts in the economy's direction.
Comparing data between 1970 and 1987, John Hoagland, a professor of management at Michigan State University, found that the Chicago data predicted a shift in the economy's direction sooner than comparable government figures.
But many economists caution against reading too much into the data. The report's sample size is comparatively small and does not contain the detail of related U.S. economic reports.