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The Chicago Business Barometer held on to most of July’s gain, falling just a fraction to 54.4 in August from 54.7 in July. While below the highs seen towards the end of last year, it’s still consistent with a bounceback in activity in the third quarter following recent weaker growth.
A slight easing in both Production and New Orders prompted the latest decline in the Barometer, with both paring some of the large gains seen in July that had left them at the highest level since January.
While New Orders and Production softened in August, both remained above their 12-month averages and significantly up from the depressed levels seen between February and June.
Part of that resilience in Production and New Orders was due to stock growth as companies built inventories at the fastest pace since November 2014. Feedback from companies was mixed although our assessment is that the overall positive tone of the survey is consistent with a deliberate stock-build in anticipation of stronger demand in Q4.
Order Backlogs fell slightly, remaining below the 50 breakeven level for the seventh consecutive month, with companies still seeing some slack following the weakness in orders earlier in the year. In contrast, Supplier Deliveries jumped into expansion to the highest since March.
Underpinned by July‘s surge in output and orders, Employment rose in August to the highest since April. Despite the latest gain, the labour component remained in contraction for the fourth consecutive month and was still close to June’s nearly 5-1/2 year low. The Employment component has been relatively weak in recent months and the survey suggests it’s unlikely to see a strong pick-up in the short-term. Responding to a special question asked in August, 63% of our panel said they didn‘t plan to expand their workforce over the next three months.
The increases in Prices Paid seen over the past three months proved short-lived, with the indicator falling sharply into contraction in August as oil and other commodity prices plunged on the month.
Chief Economist of MNI Indicators Philip Uglow said, “It was pretty much steady as she goes in August with orders and output just about holding on to July‘s gains. While the slowdown earlier in the year looks temporary, we‘re still some way below the strong growth rates seen towards the end of 2014“.
