Economy

ISM-Chicago Shows Purchasing Managers Seeing Contraction

Jon C. Ogg

Published: May 31, 2016 12:05 pm

Last Updated: January 13, 2020 7:23 am

Among the slew of economic reports on Tuesday was the ISM-Chicago’s Chicago Business Barometer for the month of May. This index fell 1.1 points to 49.3, a signal of slight overall contraction.

The Institute for Supply Management’s report showed that new orders, production and employment trends were all running at sub-growth levels. Overall, this now marks the lowest level since February, and it was the sixth time it has been in contraction over the past 12 months.

May’s overall decline was led by a 6.6 point drop in production and by what was called a mild setback in new orders. Four of the five components that make up this index were shown to be in contraction, with only supplier deliveries coming in above 50.

Tuesday’s regional report said:

Production fell to the lowest level since February, while New Orders declined to the lowest since December 2015. In contrast, Order Backlogs bounced back 9.0 points, although failed to recoup all of April’s large loss, and remained below 50 for the 16th consecutive month. Employment rose marginally but also remained in contraction where it has been in ten of the past 12 months.

Inventories tumbled by 11.7 points to 37.9 in May, the lowest since November 2009 and the seventh consecutive month in contraction. The weakness in inventories could signify uncertainty about future business growth. Supporting this, a special question posed to the Chicago panel in May showed that 68.7% of respondents did not plan to increase business investment over the next six months.

Prices Paid fell slightly having picked up by more than 10.0 points in April.

Philip Uglow, Chief Economist of MNI Indicators, said of May’s report:

While expectations are that growth in the US economy will bounce back in the second quarter, the evidence from the MNI Chicago Report shows activity weakening from an already low level. Firms ran down stocks at the fastest pace for more than 6 years in May, and while a rebuilding over the coming months could support output, the underlying message appears to be that businesses are not confident about the outlook for growth.

This is just another economic report suggesting very muted growth or slight contraction. It also does not bode well for all of those expectations for a snap-back in growth to get to a 2.0% annualized gross domestic product pace for 2016 as a whole. If this continues, it may also put a gag on all the Fed presidents who are out talking about multiple Fed rate hikes this year.