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The Chicago Business Barometer decreased 3.2 points to 50.4 in April from 53.6 in March led by a fall in New Orders and a sharp drop in Order Backlogs. It marks a slow start to the second quarter, with most measures down from levels seen a year earlier.
Three of the five Barometer components decreased between March and April, with only Production and Supplier Deliveries posting increases on the month. April’s decline left the three-month trend running at a softer pace of 50.5, having ended Q1 at the highest level in over a year.
The decline in the Barometer was led by a fall in New Orders, leaving it at the lowest level since December 2015. Order Backlogs, which last month increased to slightly below 50, saw a double-digit decline in April, while Employment moved back into contraction. Production posted a small rise while Supplier Deliveries increased sharply to the highest since October 2014.
Inventories, which have been little changed over the past few months, increased to the highest since October 2015, but remained in contraction for the sixth consecutive month, suggesting there is a lack of confidence in the recovery.
A growing number of panellists were concerned or uncertain about the impact of a rate hike by the Federal Reserve. In a special question, 35.7% of respondents said an interest rate hike in the next six months would not have an impact on business activity, while 35.7% were uncertain. 28.6% said it will have an impact, with some commenting that it would affect business growth and capital investment plans. When the same question was asked in April 2015, half of the panellists said it wouldn’t affect business, while only 21.2% said they expected to see an impact on business activity.
The recovery in the oil price as well as higher prices for some raw materials such as plastic and paper products had a significant impact on Prices Paid in April, causing it to jump back into expansion for the first time in nine months, to the highest level since November 2014.
Chief Economist of MNI Indicators Philip Uglow said, “This was a disappointing start to the second quarter, with the Barometer barely above the neutral 50 mark in April. Against a backdrop of softer domestic demand and the slowdown abroad, panellists are now more worried about the impact a rate hike might have on business than they were at the same time last year.”
