The Chicago Business Barometer dropped 10.0 points to 52.6 in July, significantly down from May’s seven month high of 65.5, led by a collapse in Production and the ordering components, all of which have been strong since last fall.
A monthly fall of this magnitude has not been seen since October 2008 and left the Barometer at its lowest level since June 2013.
In spite of the sharp decline this month, feedback from purchasing managers was that they saw the downturn as a lull rather than the start of a new downward trend. This was especially so given the recent strong performance and the fact that Employment managed to increase further in July. Nonetheless, following a strong Q2, this was clearly a poor start to Q3 and as such tempers some of the increased optimism in recent months.
Production’s large decline in July left the indicator barely in expansionary territory and at a two year low, although this followed a very strong run with output above 70 in June. New Orders, the most heavily weighted component of the barometer, saw its biggest monthly set back since November 2013.
Order Backlogs, which have expanded in every month since last October, fell into contraction in July.
The rise in the Employment component in July appeared to be somewhat of an anomaly, although one reading of it suggests that panellists expect thelull in output and orders to prove temporary.
Growth in inventories eased in July from a seven month high in June, while Prices Paid fell for the second consecutive month but remained well above 50.
Commenting on the MNI Chicago Report, Philip Uglow, Chief Economist at MNI Indicators said, “The surprise fall in the Chicago Business Barometer in July, following a strong second quarter, naturally raises questions about the sustainability of the recovery. Some feedback from panellists points to this being a temporary setback, although we’ll need to see the August data to judge to what extent this is a blip“.
