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Chicago Business Barometer Jumps To One-Year High In May

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Chicago-area business activity saw a substantial rebound in the month of May, according to a report released by the Institute for Supply Management - Chicago on Friday, with the Chicago business barometer jumping to its highest level in over a year.

The ISM Chicago said its Chicago business barometer surged up to 58.7 in May from 49.0 in April, with a reading above 50 indicating an increase in business activity. Economists had been expecting the barometer to edge up to 50.0.

With the much bigger than expected increase, the Chicago business barometer reached its highest level since March of 2012 after hitting a three-and-a-half-year low in April.

The ISM said the rebound by the business barometer was highlighted by a surge in production, order backlogs, employment and supplier deliveries from contraction to expansion.

The report showed that the production index soared to 62.7 in May from 49.9 in April, while the order backlogs index climbed to 53.1 from 40.6.

The employment index jumped to 56.9 in May from 48.7 in April, indicating a rebound by regional employment. The supplier deliveries index also rose to 52.3 from 47.9.

Additionally, the report said the new orders index advanced to 58.1 in May from 53.2 in April, suggesting an acceleration in the pace of new orders growth.

On the inflation front, the prices paid index pointed to a faster rate of price growth, climbing to 55.3 in May from 51.0 in April.

Chris Low, chief economist at FTN Financial, said the recent volatility of the Chicago business barometer suggests model-year changeovers in autos and other technical factors may be influencing the numbers in addition to fiscal-cliff fears, tax hikes, sequester fears and fluctuating underlying demand.

"This kind of volatility in Chicago area manufacturing is not unknown; it is, in fact typical when the manufacturing economy falters," Low said. "Sometimes it ends well, as in 2004, and sometimes it ends badly, as in 2008."

He added, "For now, however, the April Chicago PMI is encouraging. Let's see if the national ISM index backs it up on Monday."

Next Monday, the Institute for Supply Management is scheduled to release its report on national manufacturing activity in the month of May.

The ISM's manufacturing index fell to 50.7 in April from 51.3 in March, although a reading above 50 still indicated growth in the manufacturing sector.

While the reading above 50 pointed to the fifth consecutive month of growth in the manufacturing sector, the drop pulled the index down to its lowest level since December of 2012.

by RTT Staff Writer

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