Chicago PMI unexpectedly slips into contraction

Economic activity in the Chicago area unexpectedly deteriorated in May, falling back into contraction territory.

The Chicago Purchasing Managers’ index fell to 49.3 in May from 50.4 the previous month, hitting its lowest level since February and missing expectations of a reading of 50.9.

This marked the sixth time the index has been in contraction - below the 50 level - over the 12 months.

The decline in the index was led by a 6.6 point fall in production and was accompanied by a mild setback in new orders, with both falling below 50.

Production fell to the lowest level since February, while new orders dropped to the lowest since December 2015.

Order backlogs, however, bounced back 9.0 0 points, although they failed to recoup all of April’s large loss, remaining below the 50 mark for the 16th consecutive month.

Employment rose a touch but also remained in contraction, while inventories tumbled 11.7 points to 37.9 in May, the lowest since November 2009.

Chief economist of MNI Indicators, Philip Uglow, said: “While expectations are that growth in the US economy will bounce back in Q2, the evidence from the MNI Chicago Report shows activity weakening from an already low level.

“Firms ran down stocks at the fastest pace for more than six years in May, and while a rebuilding over the coming months could support output, the underlying message appears to be that businesses are not confident about the outlook for growth.”