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The Chicago Business Barometer declined 5.7 points to 48.7 in September as Production growth collapsed and New Orders fell sharply.
The drop in the Barometer to below 50 was its fifth time in contraction this year and comes amid downgrades to global economic growth and intense volatility in financial markets which have slowed activity in some industries. The latest decline followed two months of moderate expansion, and while growth in Q3 accelerated a little from Q2, the speed of the September descent is a source of concern.
In a special question asked to the panel in September, just under 30% of the panel said China’s economic woes had a greater impact on them than the problems faced by the European Union, although a little under 20% cited the EU as having a greater impact. Nearly 30% of the panel said that neither of them has significantly affected business.
Three of the five components of the Barometer were in contraction in September with only Employment and Supplier Deliveries above the 50 neutral level. Production led the decline with a sharp double-digit drop that placed it at the lowest since July 2009. New Orders also fell significantly and both key activity measures are running well below their historical averages.
Companies also appeared to be working below capacity with Order Backlogs remaining in contraction for the eighth consecutive month. The sharp rise in stock growth seen in August was not repeated, with inventories falling back closer in line with the longrun average.
In contrast Employment, which tends to lag orders, rose for the third month in a row, although the majority saw staffing levels unchanged. Supplier Deliveries remained broadly unchanged.
The global hit to crude oil and other commodity prices continued to come through strongly in the survey with Prices Paid falling further to the lowest since July 2009.
Chief Economist of MNI Indicators Philip Uglow said, “While activity between Q2 and Q3 actually picked up, the scale of the downturn in September following the recent global financial fallout is concerning. Disinflationary pressures intensified and output was down very sharply. We await the October data to better judge whether this was a knee jerk reaction and there is a bounceback, or whether it represents a more fundamental slowdown.“
