Chicago Economy Growth Slows After Reaching 7-Month High

The Chicago economy continues to grow, albeit at a slower pace, according to the Chicago Business Barometer report for June (link opens a PDF) released today by the Institute for Supply Management (ISM).

After reaching a seven-month high of 65.5 for May , the index dipped slightly to 62.6 for this month. Analysts had expected a decline, but their 64 estimate proved overoptimistic. 

The ISM creates its index from surveys of purchasing and supply chain professionals based in Chicago. An above-50 rating indicates expansion, while below 50 implies a contraction from the previous month. Although the geographic focus is limited to the Chicago area, investors keep tabs on the index as a leading indicator of U.S. economic activity. 

According to the report, this month's reading declined due primarily to a drop in new orders and order backlogs from May. Both components are indicators of future sales, hinting that there may be tougher times ahead for the Chicago economy. Still, the report notes that new orders and order backlogs both "remained well above their 10-year averages," meaning May might have simply been an exceptional month.

MNI Indicators (an ISM partner) Chief Economist Philip Uglow commented in a press release:

The Business Barometer shows activity slowing a little between May and June, but it remains at a high level supported by the strength in Production and New Orders. The downward revision to GDP in the first quarter was far larger than expected, and while the data now look a little historic, and the Chicago Report points to a bounceback in Q2, it does mean growth will be slower over the first half of the year than first thought.

Investors will want to keep an eye on manufacturing reports due tomorrow, as well as Thursday's Labor Department employment situation report (which includes the unemployment rate) for further signs of a slowing economy.

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