Chicago Business Index Shows Economy Weakened In May

Fri, May 29 2009, 15:00 GMT
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Chicago Business Index Shows Economy Weakened In May
By Howard Packowitz
Of DOW JONES NEWSWIRES

CHICAGO -(Dow Jones)- Business activity in the Chicago area deteriorated in May at a faster pace than the previous month, according to data released Friday by the Institute for Supply Management-Chicago. The Chicago Business Barometer - formerly known as Chicago PMI - fell to 34.9 in May from 40.1 in April and 34.1 in March, which was the lowest reading since July 1980. The May figure was far below the consensus estimate of economists surveyed by Dow Jones Newswires, which projected a reading of 42.0. Assuming the March barometer represented a bottom in the current economic slowdown, ISM-Chicago continued to predict that the recession will end in December. However, Friday's data revealed some troubling signs that the economy has yet to dig itself out of the worst financial crisis since the Great Depression. Particularly weak was the region's job market. Another very low reading in the prices paid by businesses points to deflation. ISM-Chicago said its employment index dropped to 25.0, the second-lowest reading since 1946. The grim jobs figure "continues to elicit concern and dampen the outlook for economic revival," ISM-Chicago said in a news release. In April, the employment index stood at 31.8. The prices paid index was at 29.8 in May, a modest improvement from 28.4 in April, which was the lowest in 60 years. Still, the prices paid component "continued to demonstrate historically high rates of spreading deflation," and "definitely not a sign of the impending end to a significant recession," the news release stated. Deflation is particularly worrisome because consumers tend to wait until prices move lower to make purchases. At the same time, businesses won't expand until they are able to raise prices. May production levels in the Chicago region remained static in May versus the previous month. Both readings were at 38.1, the highest since September 2008. However, any optimism was offset by declines in order backlogs and new orders, ISM-Chicago said. Order backlogs fell to 26.3 in May from 36.9 a month earlier. New orders slumped to 37.3 in May from 42.1 in April. The regional report is closely watched because it is issued just ahead of the release of a national manufacturing index from the Institute for Supply Management. ISM is scheduled to release that data at 10 a.m. EDT Monday. The Chicago Business Barometer and the accompanying data are compiled by Kingsbury International. Next month's index is scheduled to be released June 30. -By Howard Packowitz, Dow Jones Newswires; 312-750-4132; howard.packowitz@dowjones.com. Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=hkrbpzYTKfTwHZbyySf7Iw%3D%3D. You can use this link on the day this article is published and the following day. (END) Dow Jones NewswiresMay 29, 2009 11:00 ET (15:00 GMT)Copyright 2009 Dow Jones & Company, Inc.