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The MNI Chicago Business Barometer fell 3.6 points to 50.3 in January from a previously revised 53.9 in December 2016, the lowest since May 2016.
Following a strong Q4, with the three-month average of the barometer at 54.3, the January reading made for a sluggish start to the first quarter of 2017. It was down 8.4% compared with January 2016’s reading.
Three of the five components of the Barometer decreased, with only Order Backlogs and Supplier Deliveries recording gains in January.
The slide in demand contributed the most to the Barometer’s fall. New orders fell by 7.8 points, slipping into contraction territory, to the lowest level since December 2015. Growth in Production also eased, down 2.3 points to 56.0 in January. Order Backlogs rose but remained in contractionary territory. With lower orders and output, demand for labor fell. Employment remained below the break-even level for the third straight month. Supplier Deliveries lengthened, to the highest level since May last year.
This month’s special question asked firms how they expected their purchasing policies to be impacted with the Federal Reserve looking to increase rates in 2017. Almost 9 in every 10 respondents did not expect any impact on their purchasing decisions, while 8.5% of businesses expected to be negatively impacted. Fewer respondents expected to benefit from rate increases.
Elsewhere, companies reduced their stock levels at the fastest pace since May 2016, with the Inventories Indicator falling by 2.7 points in January.
January also saw inflationary pressures at the factory gate increase for the second consecutive month. Prices Paid rose to 61.4 in January, the highest since September 2014.“Business activity in the New Year got off to a slow start with contracting orders and easing production weighing heavily on hiring intentions. Activity in Q1 is usually weaker due to seasonal factors, so the following surveys will provide a better picture of business performance.” “‘Respondents to our survey did not expect to be affected by rate increases by the Fed in 2017. Although cost of capital is expected to increase, firms seemed to have already factored this into their purchase decisions.” said Shaily Mittal, senior economist at MNI Indicators.
