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The MNI Chicago Business Barometer rose 5.1 points to 62.7 in May, up from 57.6 in April, hitting the highest level since January.
Business activity gained traction in May, with growth in firms' operations up for only the second time this year. All five Barometer components rose on the month, helping take the Barometer’s year-over-year growth back into the black.
While broad based, the Barometer’s gain was largely driven by an acceleration in both output levels and orders. Having ended a run of three consecutive falls last month, the Production indicator notched another gain on its belt, rising to a three-month high. New Orders also increased in May, the first sign of order book growth this year, rising to a four-month high. The two indicators account for the lion's share of the headline index, two thirds exactly, and stand 3.7% and 2.1% above their respective May 2017 levels.
Having trended lower since the end of 2017, companies' unfulfilled orders surged in May. The Order Backlogs indicator ended a run of four straight declines, rebounding to a level last seen higher in October 2017.
A contributory factor to the rise in backlogs were elevated lead times on key supplies. The Supplier Deliveries indicator nudged higher in May, again the highest outturn since November, up 12.4% on the year. Growth in firms' level of stock, meanwhile, found room to grow in May after softening in April.
Firms were more optimistic regarding their workforce in May with the Employment indicator bouncing back from last month's six-month low. However, firms continued to stress that finding adequate workers remained challenging.
The price of key materials continued to prove a major source of angst amongst firms. Despite receding from April's seven-year high, the Prices Paid indicator remained fixed in a range last seen as high all the way back in 2011, the last time it remained above the 70-mark for two straight months.
This month, two special questions were posed to firms. The first asked firms whether supply-side issues were negatively affecting their business and a clear majority, 63.0%, said yes, consistent with the survey’s associated indicators sitting at elevated levels. The second asked firms to assess the impact of another interest rate hike in the next three months. Just under two thirds saw it having no impact on their operations, while 22.9% saw it having a negative impact. Only 2.1% who saw it assisting their business with the remainder unsure.
"It had been a somewhat sluggish start to the year, perhaps unsurprising after the stellar end to 2017, but the MNI Chicago Business Barometer found a higher gear in May. Although broad based, the rise was largely thanks to a rebound in demand and back-to-back growth in output,” said Jamie Satchi, Economist at MNI Indicators.
“The result was, however, assisted by the intensification of supply side constraints, with order backlogs surging and lead times on key materials up sharply,” he added.
