Chicago Business Barometer Signals Persistent Weakness

Chicago's Business Barometer dipped to 40.4 in June, signaling continued economic contraction. Despite a rise in new orders, falling production, weak employment, and surging costs weigh on sentiment.

Business sentiment in the Chicago region continued to falter in June, as the Chicago Business Barometer, produced with MNI, inched down by 0.1 points to 40.4. Although the move was slight, the index remains stuck well below the neutral 50 mark for the nineteenth consecutive month, underlining ongoing contraction in regional economic activity. It also sits 7.2 points beneath its March high of 47.6.

Output and Hiring Stumble, New Orders Offer Relief

The latest dip was driven by broad-based softness across the board:

Supplier Deliveries dropped 6.8 points, signaling improved delivery times amid weakening demand.
Production slipped 2.7 points, its third straight monthly decline, falling to its lowest level since January.
Employment fell by 3.9 points, but notably still marked the second-strongest reading of the year.
Order Backlogs hit their lowest point since May 2020, dropping 1.5 points. Only 4% of respondents reported higher backlogs, the second-lowest percentage in the survey’s history and the weakest since 1980.
Inventories were also trimmed sharply, down 8.0 points.

There was one positive sign as New Orders rose by 4.1 points. While still below the year-to-date average, the gain reflects a cooling in declines, more firms reported stable or rising demand compared to May.

Input Costs Jump, Squeezing Margins

Inflationary pressures reared up again:

Prices Paid surged 8.3 points to their highest level since May 2022.
A striking 70% of respondents noted higher prices in June, up from 57% the prior month, raising fresh concerns about cost pass-through and margin compression.

Despite a flicker of hope in new orders, June’s figures paint a challenging picture for businesses in the Chicago area, with production, hiring, and backlogs all sliding further. Sticky input costs only add to the pressure, keeping the regional outlook clouded for now.

Source: ISM

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