The Chicago Business Barometer declined 3.2 points in April to 50.4 led by weaker orders and employment.
Three of the five Barometer components decreased between March and April, New Orders, Order Backlogs and Employment. Supplier Deliveries and Production rose month over month, though the latter only by a small margin.
The Barometer's decline was mainly due to an 11 point fall in Order Backlogs to 38.7, the lowest level since December 2015. This was in line with buying policy measures that showed lead times to purchase capital equipment shortened.
The decline in Backlogs was not anticipated by purchasers but the softening in New Orders, which ended the month just a shade above neutral, was expected after the start of the month, according to data collected in the March report.
Order pattens continued to be plagued by a lack of large orders and absence of international demand, purchasers said. Softer ordering led to a decrease in the Employment component, which fell back into contraction, where it has been in 10 of the last 12 months.
Despite lower ordering and employment levels, Production posted a small increase as special projects, and a plethora of low volume high margin orders kept companies busy.
The most surprising element of the report was an unusually large 20.2% surge in Supplier Deliveries to the longest since October 2014. Purchasers feared extensions in lead times could be telegraphing the beginning signs of major supply chain disruptions on the horizon. Insufficient inventories of components at the supplier level were cited for lengthening in lead times, purchasers said. To a lesser extent some minor global strikes and transportation issues added to longer lead times as well.
Outside of the barometer components, Prices Paid was up over 25% to the highest in 17-months and its first expansionary read in 9 months as commodities moved higher in April.
Inventories added 5.6 points to 49.6, the highest since October as some companies noted difficulty in restocking from offshore suppliers.
Comments from the survey panel remained mixed with strong players continuing on a solid footing while others barely broke even. Others remained very weak and needed "way more orders".
Those on a solid footing reported higher backlogs and higher revenues. Others were slow and continued to note a lack of larger orders, and an ongoing focus on grabbing market share on low volume, high margin orders. The latter may have boosted production levels along with seasonal factors.
What was uniform was a lengthening in Supplier Lead times with many citing capacity issues at offshore facilities. This led to some inventory builds, purchasers said.
The survey period for the month spanned from April 4 to April.25.
