NEW YORK, Feb 26 (Reuters) - Economists expect Friday's February Chicago Purchasing Management Index to fall to a 53 reading from January's reading of 56.
The drop is seen more as a correction from January's dramatic rise from December that was, in part, fueled by a rebound in the auto sector.
As in the national index compiled by the Institute for Supply Management, a reading above 50 in the Chicago PMI indicates expansion in the Midwestern manufacturing sector, while one below that level indicates contraction. The report is slated for release on Friday, Feb. 28 at 10 a.m. EST/(1500 GMT).
Following are comments from economists:
STEVEN STANLEY, ECONOMIST, RBS GREENWICH CAPITAL MARKETS, GREENWICH CONN.:
"We are thinking that we will see a decline to 53 to 54 following the strong reading in January.
"Manufacturing seems to be doing better, but the January jump to 56 from 51.7 was overstated. This index is volatile.
"Auto production dropped in December and rebounded in January. The (expected) decline in (February) is more of a correction."
CHRISTOPHER LOW, CHIEF ECONOMIST, FTN FINANCIAL, NEW YORK:
"I am also looking for a reading of 53. There was a huge snowstorm in February that locked up the East Coast for several days. It began in the Midwest and then there was a condition orange terror warning which had an impact on consumer behavior.
"Chances are these factors also affected industrial activity and we might see a bigger drop than expected.
"The auto industry has made a practice of closing auto manufacturing plants for longer periods of time to manage costs. So, when it does reopen the plants, this shows up as a sharp rise in activity that usually does not last more than a month. This anomaly drove January's index to a higher-than-expected level.
LEHMAN BROTHERS, NEW YORK:
(WEEKLY ECONOMIC OUTLOOK, FEB. 21)
"We look for the Chicago PMI to retreat to 53.0 in February, from a 56.0 reading in January. Still solid auto production and a ramping up in inventories are likely to keep the index above 50 for the fourth consecutive month.
"However, the sensitivity of this measure to movement in business confidence cannot be discounted, so an even weaker reading is possible this month in the wake of the terror alert."
BANC ONE CAPITAL MARKETS INC, CHICAGO:
(WEEKLY ECONOMIC ECONOMIC CALENDAR, FEB. 21)
"Based on the significantly softer readings for the Empire State manufacturing index and the Philadelphia Fed survey for February, we expect the Chicago PMI for the month to decline to approximately 54.0 from 56.0 in January.
"Manufacturing appears to have lost some of its momentum around the turn of the year, but the sector continues to grow."