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The MNI Chicago Business Barometer declined to 58.4 in October, the lowest reading since April, down 2.0 points from 60.4 in September.
Business activity continued to expand at a healthy rate this month, despite the pace of activity decelerating for the third month in a row. A decline in order book growth and unfinished orders more than offset a rise in output, delivery times and employment, sending the Barometer to its lowest reading in six months. On the year, the Barometer was down 10.7%, the biggest year-over-year fall since December 2015.
Despite beginning the final quarter on a softer footing, activity remains robust relative to recent years. The headline index still sits above its five-year average, with the latest moderations possibly reflecting a reversion to more familiar levels after a series of strong performances over the past 12 months.
Partly responsible for the Barometer’s decline this month was an easing in order book growth. New Orders fell for the sixth time this year, settling at its lowest level since January 2017. Output, on the other hand, did strengthen, albeit marginally. Together, the two indicators account for 60% of the headline index.
Firm’s levels of unfinished work eased sharply in October. Order backlogs receded to a level last seen lower in April when it slipped below the neutral mark for the first time in 13 months. In contrast, average wait times on key materials picked up. The Supplier Deliveries indicator rose to its highest level in over 14 years in October, with some firms attributing the increasing wait times to under-staffed suppliers.
Firms’ level of stock was broadly unchanged in October, with the Inventories indicator holding on to the bulk of the gain recorded in September. As in recent months, some firms continued to stockpile goods in a bid to mitigate against future price hikes and keep prices down for the holidays.
Hiring activity intensified this month, with the Employment indicator up for the first time since July. Firms continued to report ongoing difficulties recruiting both skilled and unskilled workers, while others prioritized retention of their existing workforce.
Meanwhile, Prices Paid, a gauge of input price pressures, remained locked in a historically elevated range. Some firms reported seeing higher unit prices on invoices for the first time, on the back of further import tariffs levied on China, while others said they expected shortages to push prices higher over the coming months. This month’s special question asked firms whether they saw allocation issues affecting their operations in Q4. The results were fairly even, with 31.9% of respondents each saying yes or maybe and the remaining 36.2% saying no.
“The MNI Chicago Business Barometer continued to revert back towards trend-levels in October, cooling off after a hot and unsustainable run last year,” said Jamie Satchi, Economist at MNI Indicators.
“Production continues to be restrained by issues between firms and their suppliers, reflected by Supplier Deliveries at a 14-year high, while the latest raft of tariffs on Chinese goods appears to be exacerbating uncertainty across firms,” he added.
