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Chicago Purchasing Managers Index up 2.5 points to 65.5 in May
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The Chicago Business Barometer increased to 65.5 in May from 63.0 in April, the highest since October, as demand strengthened and the economy continued to recover from a weather related slowdown in Q1.
The increase in the Barometer chimes with other economic data which has shown a continued recovery in the economy. Some members of the Federal Reserve’s rate setting panel, the FOMC, have cast doubt on whether the economy is on a path of sustained above trend growth, but this month’s Barometer certainly points to a strong recovery in the second quarter.
The Barometer’s faster expansion was helped by a return to normality following the adverse weather conditions of Q1, with companies playing catch-up to make up for lost output. This was clear from the large spike in Order Backlogs to a three year high, as companies faced a double whammy of strong new demand as well as having to shift existing orders.
Also underpinning the Barometer was a mild expansion in New Orders and a slight lengthening in supplier lead times. Production dipped in May following a sharp increase in April, although remained at a high level, while Employment fell slightly to below the average seen over the past 12 months.
Inventories of finished goods rose for the second consecutive month and jumped into expansion after two months in contraction, standing at the highest since November, as firms built stocks in line with planned sales over the summer.
Having fallen for three months in a row, Prices Paid experienced the largest monthly gain in nearly five years, fuelled by price increases from suppliers an higher prices for oil-related products and machinery and equipment wholesaling.
It looks pretty clear now that the slowdown in Q1 was due to the poor weather, with activity now back to or exceeding the level seen in Q4. The rise in the Barometer to a seven month high in May suggests we’ll see a significant bounceback in GDP growth this quarter following the contraction in Q1. We’ve had false dawns before, but the long run of strength in the survey, coupled with other more positive economic data, suggests growth is becoming more entrenched.
Posted: May 30, 2014 Friday 09:45 AM