Chicago PMI in June Makes Biggest Drop Since October 2008

Andrew Klips |

Manufacturing activity in the Chicago area cooled in June, according to a report from the Institute for Supply Management on Friday. The ISM Chicago Business Barometer™, a regional gauge of the U.S. economy released on the last working day each month, made its biggest one-month drop in nearly five years.

Commonly called "Chicago PMI," the barometer fell from 58.7 in May to 51.6 in June, its biggest decline since October 2008. Economists were expecting a 55.0 mark in June. Readings over 50 indicate expansion in the regional business activity, while below 50 indicates contraction.

The Chicago Business Barometer is composite diffusion indicator that is designed to predict future moves in U.S. gross domestic product. It is five components are Production, New Orders, Order Backlogs, Employment and Supplier Deliveries.

The recent volatility in the index had several economists noting that the 14-month high in May was unusually strong. The month earlier, Chicago PMI was at a 3-1/2 year low at a 49.0 reading. The ISM said that some of the gyrations could be the result of unseasonable weather conditions.

Only one of the five measures of business activity that comprise the index, the employment indicator, registered a gain in June. Order backlogs fell to their lowest level since September 2009, acting as an anchor on the index. Faster supplier delivery times drug the index lower with production and new orders also registering declines for the month.

"Activity dropped back in June following the large rise in May," said Philip Uglow, chief economist at MNI Indicators, the group that conducts the survey for the ISM. He added, "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."

Chicago PMI for the past 2 years:

Chicago PMI June 1013 Chart

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