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The Chicago Business Barometer recovered half of May’s loss in June but stayed in contraction for the second consecutive month, with activity weakening further in Q2 from an already depressed Q1.
The Barometer increased 3.2 points to 49.4 in June from 46.2 in May, up from February’s 5½-year low but spending the fourth month below 50 since the start of the year. Despite the modest improvement in June, the Barometer declined to 49.3 in Q2 from 50.5 in the previous quarter, the lowest since Q3 2009, a signal that the bounceback in economic growth in Q2 may be weaker than expected.
The increase in the Barometer between May and June was led by an 8.8% expansion in New Orders to 51.7 in June, pulling the indicator out of contraction. Production contracted at a slower pace, rising 8.7% in June but failing to jump above 50. Despite the rises, both measures remain at relatively low levels.
Aside from higher orders and output, there were few positives in the June Chicago Report. Amid weak demand in recent months, the Employment Indicator fell to the lowest since November 2009, standing below 50 for the second month in a row and pointing to a slowdown in the pace of hiring. Order Backlogs contracted at the fastest pace since September 2009 and was below 50 for the fifth month in a row, while Supplier Deliveries decreased more moderately but recorded a two-year low.
Companies continued to reduce their inventory levels that last month were viewed by many panellists as too high, an indication of weak demand. Inventories of finished goods fell 12% between May and June, marking the third consecutive decline and standing below 50 for the first time in four months.
Disinflationary pressures eased further in June following the rebound in oil prices, with Prices Paid rising for the second consecutive month to the highest since December.
In spite of the continued softness in the data, most companies in our panel were optimistic about the short-term outlook. Results from a special question asked this month showed 56.5% anticipated higher New Orders in Q3 compared with Q2, while 37.7% said they expected the same level of orders. Only 5.8% of respondents forecast a decline.
Chief Economist of MNI Indicators Philip Uglow said, “While the latest increase in New Orders is a tentative sign of a pick-up in demand over the coming months, there is no getting away from the general softness in the data. The Barometer hit a 5½ year low in Q2 and the weakness is having a detrimental impact on the level of hiring.”
