LONDON — The MNI Chicago Business Barometer fell to a five-month low of 60.4 in September, down 3.2 points from August's 63.6.
Business operations continued to improve at a solid clip, despite activity decelerating for a second straight month. Moderation in both output and order book growth, alongside weaker hiring sentiment, were culpable for the Barometer's decline, offsetting slightly longer delivery times and a higher count of unfinished orders.
Although down on a year-over-year basis for only the second time since January 2017, the Barometer continues to indicate strong overall business conditions, with all key measures of activity above their respective long-run levels. Over Q3, the headline index averaged 63.2, the best calendar quarter outturn this year.
Production and New Orders growth remained solid, despite both softening in September. Production eased to a 6-month low and New Orders growth ran at its slowest pace in 5 months. Anecdotal evidence continued to report some firms outperforming their own forecasts, but others noted a slowdown in output and weaker demand.
After easing last month, levels of Order Backlogs rose in September. Healthy levels of demand have left firms unable to complete orders, exacerbated by allocation issues surrounding key input components and employment shortages. Reflecting this, Order Backlogs averaged a three-decade calendar quarter high in the three months to September.
Supplier Deliveries also notched a rise in September, having shortened over the prior two months. There was evidence that Hurricane Florence impacted on operations, specifically trucking routes, while the wider-effects of import tariffs and material shortages continued to rumble on in the background.
Firms continued to add to their stock levels building on August's marked rise. While fears surrounding the availability of inputs continued to encourage stockpiling, forecasts of higher future demand also led to the rise in Inventories. Hiring activity continued to ease this month, reverting towards long-run averages. Firms still appear open to adding to their workforce, but difficulties remain identifying adequate workers.
There were no signs of an alleviation of input price pressures. Although the Prices Paid indicator did ease in September, it remained hemmed in a range consistent with a 10-year high on both a monthly and calendar quarter basis. Tariffs continue to push prices higher alongside material shortages; sourcing electrical components proved particularly difficult, according to firms.
This month's special question asked firms how they thought their delivery times would fare in the final quarter of the year. Just over half of firms saw delivery times lengthening versus just 6.0% who saw their items getting to them quicker. The remaining42%, predicted no change.
"The MNI Chicago Business Barometer slipped to a five-month low this month, courtesy of a softening across both Production and New Orders. That said, the survey continues to indicate robust business conditions, reflected by the best calendar quarter outturn this year in Q3," said Jamie Satchi, economist at MNI Indicators.
"Supply-side frustrations continue to hamper firms' production lines and the majority of firms expect delivery times to lengthen further, anticipating ongoing trade disruptions to weigh on suppliers," he added.
The survey period ran from September 3 to September 20.
