.jpg)
The Chicago Business Barometer made a positive start to the third quarter, jumping above 50 after two months in contraction, leaving economic activity expanding at the fastest pace since January.
The Chicago Business Barometer increased 5.3 points to 54.7 in July led by a double digit gain in Production and accompanied by gains in New Orders and the other three components. While all components that comprise the Barometer rose in July, three of them – Order Backlogs, Supplier Deliveries and Employment – remained in contraction, although these elements would be expected to lag.
Companies reported a strong revival in output in July after five months of relatively weak business activity. Production rose sharply by 12.0 points to 61.8 amid a bounce back in inventory growth to the highest since April underpinned by a solid gain in New Orders. Like the Barometer, both Production and New Orders expanded at the fastest pace since the beginning of the year.
In spite of the increased level of orders and output, Employment improved only modestly and remained below 50 for the third consecutive month with the indicator rising only slightly above June’s 5½-year low. Order Backlogs remained in contraction for the sixth consecutive month despite a healthy gain over last month’s near five-year low and the increased level of orders in July – the relative slack in recent months appears to have allowed firms to turnaround orders quickly. Supplier Deliveries were little changed and continued to hover just a shade above June‘s two-year low.
Prices Paid increased by 1.2 points to 54.5 in July, the highest since December and the third consecutive rise. It was, though, too early for the recent sharp fall in crude oil prices to be reflected in the survey results and the small increase in Prices Paid may well prove short-lived.
Most companies reported that wage growth was pegged at a low level. Responding to a special question asked in July, 40% of respondents said wages had grown by 1-2% over the past year while 19% said wages were up 3-4% and nearly a quarter of the panel said that wage growth over the year was unchanged.
Chief Economist of MNI Indicators Philip Uglow said, “The recent weakness in the Chicago Business Barometer had sounded a few alarm bells over the resilience of the US economic recovery. The positive start to the third quarter, however, suggests that activity bounced back firmly as firms saw orders and output increase sharply.“
