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The MNI Chicago Business Barometer decreased by 4.5 points to 49.7 in June from 54.2 in May, marking the first sub-50 reading since January 2017.
Business confidence dipped significantly in Q2, with the Barometer averaging 52.2, down 13% on the previous quarter and almost 16% lower than Q2 2018.
Demand eased for the fourth time this year, helping push the indicator into the contraction territory for the first time since January 2017. Amid weak demand, firms also slowed production levels. The Production indicator fell 15.5% on the quarter to hit a three-year low.
Order Backlogs remained in contraction for the second consecutive month. It was the only indicator that fell below 50 on the quarter as well.
Firms continued to accumulate inventories amid longer offshore lead times. Having contracted in Q1, inventories were on a rise in the three months to June.
There were some reports of hiring new staff and summer interns, replacing retirees. The indicator averaged 50.8 in Q2, the lowest since Q4 2016.
Factory gate prices picked up for the second consecutive month. There was anecdotal evidence of tariffs leading to higher prices, with some firms looking for cheaper alternate sources.
This month’s special question asked firms about the impact of government-imposed tariffs on their business. 80% of firms said that they were negatively impacted, with tariffs raising prices of their goods leading to a pullback in orders.
“The Barometer entered contraction territory, having remained above 50 for over two years. With customers rethinking their purchases, demand tumbled, and consequently firms pulled back production, weakening overall business sentiment,” said Shaily Mittal, Senior Economist at MNI.
"In coming months, our survey will provide further evidence as to whether the diminished business confidence is temporary amid tariffs woes or more structural calling for some counter measures,” she added.
