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The Chicago Business Barometer contracted at the fastest pace since July 2009, falling 5.8 points to 42.9 in December from 48.7 in November.
It has been a volatile year for the Barometer. New Orders and Production have experienced particularly large swings with businesses never recovering fully from a sharp plunge at the beginning of the year. The Barometer’s December print is 16.5 points beneath the January high of 59.4. The quarterly average declined to 49.3 in Q4, the same as in Q2 which was the weakest quarter since Q3 2009.
Order Backlogs provided a particular drag in December, registering a 17.2 point fall to 29.4. Backlogs have now been in contraction for 11 consecutive months this year and stood at the lowest since May 2009. The double digit move in Backlogs is a rare occurrence and the depth of the decline has only been surpassed by a 17.4 drop in March 1951.
There was also ongoing weakness in New Orders, which contracted at a faster pace, to the lowest level since May 2009. The fall in Production was more moderate but still put it back into contraction for the sixth time this year. The Employment component, which had recovered in recent months, dropped back below the 50 neutral mark in December, leaving it at the lowest since July.
The only positive this month came from a special question with 55.1% of the panel expecting demand to be stronger in 2016 compared with 14.3% who thought it would be lower. 30.6% of respondents thought demand would be unchanged.
The only component of the barometer to increase was Supplier Deliveries, which expanded 4.8 points to 56.5, with longer delivery times more likely due to issues with logistics than demand.
Prices Paid increased sharply on the month in December, although it remained in contraction.
Chief Economist of MNI Indicators Philip Uglow said, “The steepness of the decline in the Barometer in recent months ends a particularly volatile year, which has seen orders and output move in and out of contraction. It lends weight to the Fed’s gradual approach to tightening, with the flexibility to change direction if needed.”
