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The MNI Chicago Business Barometer eased to 65.4 in December, down 1.0 point from November’s 66.4.
Three out of the five Barometer sub-components lost ground on the month, but solid gains in Production and Order Backlogs helped the headline index maintain most of November’s eightpoint rise.
Recording just the fourth year-over-year fall this year, the Barometer continues to signal a healthy business environment, notching the 34th consecutive reading above 50. Over Q4 as a whole, the headline index averaged 63.4, the best calendar quarter outturn this year.
Contributing to December’s moderation was a fall in demand, easing somewhat after surging last month. However, November’s order book strength did translate into higher output this month with Production rising to an 11-month high. As last month, firms reported customer pressure for earlier delivery on existing orders.
Order Backlogs rose for a second straight month, hitting a fivemonth high, further reversing October’s fall. Supply-side issues abated this month but still remain a hinderance. The Supplier Deliveries indicator fell to its lowest level in a year this month.
On balance, firms continued to increase inventory levels in December. There was anecdotal evidence of firms accumulating stock in preparation for new product releases and in response to increased orders. For others, however, inventories remained high by virtue of an unanticipated quietening in demand. After two consecutive months of higher readings, the Employment indicator receded in December, hitting a three-month low, although did remain above the neutral-50 mark.
Inflationary pressures on firms continued to ease in December, with the Prices Paid indicator down for the fifth consecutive month and by the biggest margin in almost four years. Steel and wood were reportedly less costly, but multiple firms continued to report tariffs keeping prices elevated and stifling business.
December saw two special questions posed to firms. The first asked for their proposed business activity forecast for next year.
An equal share, 46.8%, believed their business would expand by a rate below 5% or by a rate between 5-10%, while just 6.4% saw growth coming in above 10%.
The second question focused on labor productivity and the proportion of their 2019 budget allocated to this. The majority, 51.1%, said they would spend less than 5% of their budget on maintaining or improving workforce productivity, while 35.6% said they would spend anywhere between 5-10%. The remaining 13.3% said they would allocate more than 10%.
“The MNI Chicago Business Barometer saw 2018 out in good health, assisted by a firm uptick in Production, cementing the best calendar quarter outturn in a year,” said Jai Lakhani, Economist at MNI Indicators.
“Encouragingly, inflationary pressures subsided for a fifth consecutive month and should this continue, it will ease the burden on firms‘ productive capacities. Still, concerns over tariffs continue to linger in the background and stir uncertainty,” he added.
