The Chicago Business Barometer from ISM-Chicago and Deutsche Börse rose sharply from 49.0 in April to 58.7 in May. This gain was much larger than expected, with the data indicating that the decline in activity in April was short-lived. Earlier in the week, the Midwest Manufacturing Index from the Chicago Federal Reserve Bank also found lower levels of output in April, so these numbers provide some degree of encouragement after some spring softness in the region.
The ISM-Chicago survey was upbeat across-the-board, with higher levels of production, new orders, and employment. The largest increase was seen in the production index, which rose from 49.9 in April (just barely below neutral) to 62.7 in May (a healthy expansion). This was the fastest pace in just over one year. The employment measure was also positive news, with net hiring shifting from 48.7 (a slight contraction) to 56.9 (modest growth).
This data suggest the rebound in Midwestern manufacturing activity should continue in the coming months. New orders – a proxy for future production – increased from 53.2 to 58.1, indicating that sales have picked up somewhat after slowing in March and April. At the same time, inventories have fallen to their lowest level in 3½ years, down from 40.6 to 40.4. With stockpiles of goods low, future growth in new orders should lead to an acceleration in production activity.
We will see if this upbeat data translate from the Chicago region to the national numbers. The Midwestern figures are heavily influenced by the auto sector, which continues to see robust numbers and has helped the region have outsized gains in production relative to the country as a whole.
The Institute for Supply Management’s purchasing managers’ index data for manufacturing will be released on Monday, and the current consensus is for very slow growth in activity.
Chad Moutray is chief economist, National Association of Manufacturers.
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