Chicago PMI slips in May, but economists sound confident note

Manufacturing activity in the Great Lakes area cooled in May, the results of a widely-followed survey revealed, albeit amid indications that firms were expecting conditions to pick-up.

Market News International's Chicago Business Barometer slipped from a reading of 58.3 for April to 55.2 in May.

However, Shaily Mittal, a senior economist at MNI, said the latest readings should be viewed in the context of recent strength.

"Business activity over the past three months is running significantly above the levels seen during the same time last year," he said.

New orders were especially weak, with a subindex tracking them dropping by a sharp 9.6 points from one month to the next - and hitting its lowest level since January.

Meanwhile, order backlogs continued to shrink for a sixth month running. Suppliers also took longer to deliver key inputs, with delivery times lengthening as they ran out of stock because they had been maintaining low inventories.

Hiring on the other hand was showing "tentative" signs of a pick-up, with the corresponding index having sat at above the key 50.0 point level in two of the last three months, MNI said.

As well, a special question asking firms if they planned to expand their workforce over the next three months saw more than half of them answer that they were.

That, MNI said, suggested businesses were optimistic about demand in the summer.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, was of a similar view, explaining to clients how in the short-term the MNI index is influenced by the erratic flow of orders for Boeing, despite which the recovery in factory activity continued.

"We appreciate that the key components in other regional surveys dipped in May but they previously overshot relative to the ISM and the latest declines look like corrections to us. Still, we can’t rule out another dip in the ISM, even though our core view is that the gradual manufacturing recovery continues."