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The MNI Chicago Business Barometer fell 3.6 points to a five-month low of 50.6 in October from 54.2 in September, suggesting economic activity in the US lost some momentum having picked up in Q3.
The latest out turn marked a weak start to Q4, with the three-month trend softening to 52.1 in October from53.8 in the three months to September.
The Barometer decline was led by a slowdown in Production, which fell 5.4 points to 54.4, giving up most of the gain seen last month but remaining above the 2016 average. New Orders also subtracted from the Barometer, falling to the lowest level since May. Order Backlogs increased slightly, but failed to jump out of contraction territory, where they have been over the past three months. Employment saw a smaller rise,edging back above the 50-breakeven level andrecovering some of the lost ground experienced in the previous month. Meanwhile, Supplier Deliveries fell to the lowest level since June.
Companies were slightly less upbeat compared with a year ago about the future level of orders. In response toa special question, 32% of respondents anticipated higher orders in Q4. This was a little down from 36% in October 2015, but significantly down from 46% in June 2016. 45% of panelists expected demand to keep running at the same pace, with many citing the Elections as a source of uncertainty.
Companies decreased their stock levels at the fastest pace since May 2016, with the Inventories Indicator slipping back into contraction in October.
There was evidence of a pick-up in inflationary pressures at the factory-gate. Prices Paid rose to the highest level since November 2014, following the recovery in the oil price and panellists also reported higher prices for steel and plastic products. Moreover, suppliers have been pushing for price increases in recent months and some of these pressures appeared to have materialised in October.“
A key takeaway from the latest survey was the pick-up in Prices Paid to a nearly two-year high. Inflationary pressures are on the rise, which is one of the metrics the Federal Reserve has been waiting for to increase rates. However, economic growth ahead, as read by the October Chicago Business Barometer, looks very disappointing. Hopefully, it doesn’t mark the start of a downward trend,” said Lorena Castellanos, senior economist at MNI Indicators.
