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The MNI Chicago Business Barometer eased to 63.9 in November, down from 66.2 in October, to stand at the lowest level in three months.
Despite receding from October’s six-and-a-half year high, optimism among businesses recorded the fourth highest outturn this year. The Barometer has expanded for 21 straight months and is poised to see out 2017 in solid fashion.
Output expanded at a robust rate in November, as businesses continued to benefit from healthy domestic conditions and an abating of the disruption brought about by the recent adverse weather. New Orders, although retreating from October’s fourmonth high, remained in good health. Of the Barometer’s other three sub-components, Order Backlogs was the only other to also lose ground during the month.
Backlogs have generally trended upwards for much of 2017, culminating in a 43-year high last month. Though partially driven by healthy demand, the gains notched in more recent months were also explained by a carryover of orders after the recent storms. As the associated disruption continued to wind down, coupled with softer new orders, backlogs eased to a three-month low.
Companies faced longer supplier lead times in November and there was evidence that this, along with solid demand, led them to stockpile goods. The Supplier Deliveries indicator expanded at the fastest pace for more than thirteen years while the Inventories indicator climbed to an eight-month high.
After slipping into contraction territory for only the fourth time this year in October, the Employment Indicator returned to expansion in November. The tight labour market has meant firms have had difficulties recruiting adequately trained personnel. This month, although firms did add to their workforces, there was again evidence of them turning to temporary workers, with some unable to secure skilled workers due to their current pay structure.
This month’s special question asked businesses to predict the effect of a further hike in interest rates on their activities. The majority of firms, exactly three-in-four, saw it having no material impact while only 23% said it would harm their business. One more hike has been pencilled in before the turn of the year by the Federal Reserve and the minutes from the most recent policy meeting revealed many policymakers felt a further rise in rates in the near-term was “warranted”.
Inflationary pressures at the factory gate remained elevated in November, with the Prices Paid indicator at the third-highest level this year. Firms reported a wide range of input prices failing to edge down from heightened levels, some initially induced by the hurricanes a few months ago.
“Despite November’s fall, the MNI Chicago Business Barometer remains on track to deliver the first full year of expansion in three years. Firms seem to have navigated through the worst of the bad weather conditions in recent months, though supplier deliveries rising to a thirteen-year high and persistent, high input costs suggests the effects are yet to fully dissipate away,” said Jamie Satchi, Economist at MNI Indicators.
