Chicago-area business activity saw continued growth in the month of June, according to a report released by the Institute for Supply Management - Chicago on Friday, although the pace of growth slowed by much more than economists had anticipated.
The ISM Chicago said its Chicago business barometer tumbled to 51.6 in June from 58.7 in May. While a reading above 50 indicates continued growth in regional business activity, economists had been expecting a more modest decrease to a reading of 55.0.
The bigger than expected decrease, which reflected the steepest monthly drop since October 2008, pulled the business barometer down off the fourteen-month high set in May.
Order backlogs had the biggest negative impact on the business barometer, with the order backlogs index plunging to 38.4 in June from 53.1 in May. The drop pulled the index down to its lowest level since September of 2009.
The new orders index also fell to 54.6 in June from 58.1 in May, while the production index dropped to 57.0 from 62.7 in the previous month.
Meanwhile, the report also showed that the employment index edged up to 57.8 in June from 56.9 in May, indicating a modest acceleration in the pace of regional job growth.
The ISM Chicago noted that the recent volatility shown by the business barometer is not typical and said some of the gyrations might be attributable to unseasonable weather conditions.
On the inflation front, the report showed that the prices paid index climbed to 59.9 in June from 55.3 in May, suggesting an acceleration in the pace of price growth.
Philip Uglow, Chief Economist at MNI Indicators said, said, "The trend level of the Barometer has picked up since the fourth quarter of 2012, and while these latest data point to some weakening between the first and second quarter, it is too early to say if this will continue."
Last week, the New York Federal Reserve released a report showing that conditions for New York manufacturers improved modestly in the month of June.
The New York Fed said its general business conditions index rose to a positive 7.8 in June from a negative 1.4 in May, with a positive reading indicating growth. Economists had expected the index to climb to a positive 0.5.
While the headline index rose by much more than expected, the New York Fed noted that most other indicators in the survey fell for the month.
Separately, the Philadelphia Fed said its diffusion index of current activity jumped to a positive 12.5 in June from a negative 5.2 in May, while economists had expected the index to climb to a negative 1.0.
With the much bigger than expected increase, the Philly Fed index rose to its highest level since hitting 13.7 in April of 2011.
Peter Boockvar of Morgan Stanley said, "With all the regional survey's now seen, the national ISM is expected to tick back above 50 but barely at 50.5 from 49 in May."
"Manufacturing remains lackluster but less so in June maybe due in part to some signs that Europe stopped getting worse," he added.
The Institute for Supply Management is scheduled to release its report on national manufacturing activity at 10 am ET next Monday.
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