Chicago Business Activity Surges in May
A key indicator of business activity in the Chicago region saw a significant surge in May, reaching levels not seen in over four years. This spike signals a boost in U.S. manufacturing momentum.
The Chicago Business Barometer, created by MNI Indicators and ISM Chicago, jumped 13.5 points to 62.7 in May, landing firmly in the expansion zone after dipping below the neutral mark of 50 in April. A score above 50 suggests growth compared to the previous month.
This monthly rise marks the second-largest since the index was first established in February 1967, with the only larger increase occurring in July 2020, when economic activity rebounded sharply following pandemic-related shutdowns.
The component measuring new orders, a crucial indicator for upcoming production and employment, climbed 18.2 points, reaching its highest level since January 2022. Similarly, the production sub-index rose by 11.9 points, marking its fifth consecutive month of growth.
Order backlogs saw a 9.4 percentage-point increase, returning to an expansion phase, while supplier deliveries grew by 3.6 percentage points, almost offsetting April’s decline. However, employment dropped by 1.3 points, though it remained above March levels. It’s important to note that in tight labor markets, cuts in hiring plans might not indicate a pullback from growth; rather, they often reflect a recognition that future growth won’t stem from rising wages.
This report highlights the cost pressures companies are encountering. The prices paid increased by 3.5 percentage points, reaching the highest level since May 2022, with participants noting that rising oil prices and transport fuel surcharges were significant contributors to higher input costs.
One notable aspect of May’s survey involved specific questions that revealed how Chicago-based businesses are actively adjusting their supply chains in response to geopolitical risks and economic uncertainty. About 52% of those surveyed reported upping their raw material inventories to bolster resilience. Approximately 54% indicated they were diversifying their supplier networks, with the same percentage citing increased collaboration with suppliers for better real-time visibility. Additionally, 40% noted they had shifted sourcing to suppliers located outside regions impacted by geopolitical conflicts.
The Chicago metrics often serve as a precursor to the national ISM manufacturing index, which is due for release on Monday. This national index has been mostly in contraction territory for the past two years. Strong data from Chicago could signal a wider manufacturing resurgence.
Federal Reserve officials, who are set to meet again in mid-June, have kept interest rates steady while monitoring clear signs that inflation is gradually settling toward its 2% target. A consistent recovery in manufacturing could potentially complicate their decisions, especially if it leads to upward price pressures.
