Chicago-area business activity unexpectedly contracted in the month of April, according to a report released by the Institute for Supply Management - Chicago on Tuesday, with the reading on regional business activity falling to its lowest level in over three years.
The ISM Chicago said its business barometer fell to 49.0 in April from 52.4 in March, with a reading below 50 indicating a contraction in regional business activity.
The drop came as a surprise to economists, who had expected the business barometer to come in unchanged compared to the previous month.
With the unexpected decrease in April, the Chicago Business Barometer fell to its lowest level since September of 2009.
Chris Low, chief economist at FTN Financial, said, "The weakness in Chicago was a surprise in part because Chicago was stronger than other regional indices from January to March."
"The strength may have resulted from a focus on auto production in the area," he added. "Car sales appear to have gotten a temporary boost from the early bonuses paid in the fourth quarter."
The pullback by the business barometer was partly due to a contraction in production, with the production index sliding to 49.9 in April from 51.8 in March.
The report showed that the employment index also fell to 48.7 in April from 55.1 in March, indicating a contraction in Chicago-area employment.
The order backlogs index also dropped to 40.6 in April from 45.0 in March, while the inventories index edged down to 40.6 from 41.0.
On the other hand, the ISM Chicago said the new orders index inched up to 53.2 in April from 53.0 in the previous month.
The report also showed that the prices paid index fell to 51.0 in April from 61.0 in March, suggesting a significant slowdown in the pace of price growth.
Earlier this month, the Federal Reserve Banks of both New York and Philadelphia released disappointing reports on regional manufacturing activity.
The Institute for Supply Management is scheduled to release its national report on manufacturing activity in the month of April on Wednesday. Economists currently expect the manufacturing index to edge to 51.0 from 51.3, with a reading above 50 indicating growth.
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