The Chicago Business Barometer eased to 62.6 in June, from a seven month high of 65.5 in May, but was still up sharply on the quarter and consistent with a bounceback in Q2 GDP.
The Barometer was up considerably from 52.0 a year ago, marking the fourteenth consecutive monthly expansion, and the third month in a row above 60. The bounceback in Q2 to a solid average of 63.7 from 58.4 in Q1, was the highest level for three years and points to a rebound in GDP growth in the second quarter following the sharp fall in Q1.
The Barometer’s strength during Q2 was underpinned by strong rises in both New Orders and Production. In June, a fall in New Orders from a seven month high in May led the Barometer’s decline, although it remained well above the 50 mark, confirming continued strong demand. Order Backlogs also weighed negatively on business activity and declined from May’s three year high. While both components contributed negatively to the Barometer in June, they remained well above their 10 year averages.
Production rose firmly above 70 in June, close to April’s level, and ended at an average of 68.3 in the three months to June, nearly eight points above Q1. Increased output led to a gain in the Employment Indicator to a four month high. A lengthening in Supplier Deliveries also supported the Barometer in June, but weighed negatively on business.
Latest GDP data showed that a drawdown in stocks hit growth in Q1. Our Inventories Indicator, though, posted a third consecutive monthly increase to the highest since November, as firms rebuilt stocks. Some respondents said they built inventories ahead of a possible strike by longshoremen at ports.
Commenting on the MNI Chicago Report, PhiliUglow, Chief Economist at MNI Indicators said, “The Business Barometer shows activity slowing a little between May and June, but it remains at a high level supported by the strength in Production and New Orders.”
“The downward revision to GDP in the first quarter was far larger than expected, and while the data now look a little historic, and the Chicago Report points to a bounceback in Q2, it does mean growth will be slower over the first half of the year than first thought. The Q3 data cycle, not least our own Barometer, will be critical in terms of determining the timing of the first hike in rates,” he added.
