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The Chicago Business Barometer fell sharply back into contraction in May, reversing all of April’s gain and casting doubt on the strength of the widely expected bounceback in the US economy in the second quarter.
The Barometer fell 6.1 points to 46.2 in May from 52.3 in April. All five components of the Barometer weakened with three dropping by more than 10% and all of them now below the 50 breakeven mark.
April’s positive move had suggested that the first quarter slowdown was transitory and had been impacted by the cold snap and port strikes. May’s weakness points to a more fundamental slowdown with the Barometer running only slightly above February’s 5½-year low of 45.8. The three month< average, although little changed on the month at 48.3, is significantly down from 61.3 in Q4 2014 and< barring a sharp rebound in June points to continued sluggish growth in the second quarter. The only positive that can be taken from the May results was that comments from the survey panel sugg weakness was not broad based across all sectors.
The decline was led by a 13.8% fall in New Orders to 47.5 from 55.1 in April, pushing it into contraction for the third time this year. In line with the lower order intake, both Production and Employment Indicators suffered double-digit losses in percentage terms between April and May, with the latter falling to the lowest since April 2013. Order Backlogs declined more moderately, remaining in contraction for the fourth consecutive month.
There was further evidence that the period of oil driven softer prices has run its course. Prices Paid jumped sharply back into expansion in May to the highest since December.
Inventory growth eased slightly in May, but remains high relative to other measures in the survey. Results from a special question asked this month show that a significant proportion of our panel see their current inventory level as too high, a potential weight on growth ahead and indicative of the current weak demand situation. 42% of companies said their current inventory level was too high compared with 12% in a comparable question asked in November 2014. 53.2% said stock levels were about right, with less than 5% reporting them as too low.
Chief Economist of MNI Indicators Philip Uglow said, “We had thought that the April bounce was consistent with a partial return to normal following the weather and port related slowdown in the first quarter. The latest data for May, however, suggest that this was a false dawn and that sluggish activity has carried through to the second quarter.”
