Econintersect: The Chicago Business Barometer improved and is now in expansion.
From Bloomberg, the market expected the index between 49.5 to 53.8 (consensus 50.0) versus the actual at 54.7. A number below 50 indicates contraction. Chief Economist of MNI Indicators Philip Uglow said,
The recent weakness in the Chicago Business Barometer had sounded a few alarm bells over the resilience of the US economic recovery. The positive start to the third quarter, however, suggests that activity bounced back firmly as firms saw orders and output increase sharply.
The Chicago Business Barometer increased 5.3 points to 54.7 in July led by a double digit gain in Production and accompanied by gains in New Orders and the other three components. While all components that comprise the Barometer rose in July, three of them - Order Backlogs, Supplier Deliveries and Employment - remained in contraction, although these elements would be expected to lag.
Companies reported a strong revival in output in July after five months of relatively weak business activity. Production rose sharply by 12.0 points to 61.8 amid a bounceback in inventory growth to the highest since April underpinned by a solid gain in New Orders. Like the Barometer, both Production and New Orders expanded at the fastest pace since the beginning of the year.
In spite of the increased level of orders and output, Employment improved only modestly and remained below 50 for the third consecutive month with the indicator rising only slightly above June's 5½-year low. Order Backlogs remained in contraction for the sixth consecutive month despite a healthy gain over last month's near five-year low and the increased level of orders in July - the relative slack in recent months appears to have allowed firms to turnaround orders quickly. Supplier Deliveries were little changed and continued to hover just a shade above June's two-year low.
The Chicago ISM is important as it is a window into the national ISM reports which will be issued shortly. When you compare the graph below of the ISM Manufacturing Index against the Chicago PMI (graph above) - there is a general correlation in trends, but not necessarily correlation in values.
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