The MNI Chicago Business Barometer dropped to 56.7 in January, down 7.1 points from December’s downwardly adjusted 63.8.

Four out of the five Barometer sub-components started the year lower. Notable falls in Production and New Orders contributed to most of the 7.1-point fall in the headline index.

The decline marked the fifth time in two years the Barometer has fallen on a year-over-year basis. However, the Barometer continues to signal healthy business conditions, recording a 24th consecutive reading above 50.

Contributing to the bulk of January’s downside was a drop in New Orders to a two year low. As a result of January’s weak order book strength, Production declined to a 10-month low. Firms noted an inability to absorb cost-push pressures as a reason for customers being deterred from placing orders in January.

Order Backlogs did not build on the momentum seen in the latter stages of Q4 and eased to a three-month low.

Supply-side issues continued to subside in January, although remaining somewhat elevated. The Supplier Deliveries indicator fell to a 17-month low in January.

On balance, firms reported a relatively small drop in inventory levels in January. However. there was anecdotal evidence of firms accumulating stock because of new product launches and incentive programs. Some firms increased inventories in expectation of stronger orders, whilst others as a result of higher lead times and tariffs.

The Employment indicator was relatively unchanged from December’s three-month low but did still remain above the neutral-50 mark.

There were reports of firms having faced difficulties sourcing production staff such as welders and machinists over the past three months.

Inflationary pressures remained elevated, although the Prices Paid indicator was unchanged on the month, ending a run of five consecutive monthly falls. Firms experienced higher prices in raw materials as well as metals, and the continuation of tariffs. Firms also alluded to continued pressures from supplier price increases.

January saw firms asked if financial market volatility was having an impact on their organization. A total 42.9% of firms believed their business was not impacted by market volatility, slightly higher than the 40.8% of firms who believed market volatility was impacting their organization. The remaining 16.3% of firms were uncertain whether market volatility had impacted them.

“The MNI Chicago Business Barometer had a sluggish start to 2019, pressured by significant drops in both New Orders and Production, resulting in the lowest headline reading in two years,” Jai Lakhani, Economist at MNI Indicators, said.

“Encouragingly, some anecdotal evidence pointed to temporary factors such as holidays as the reason for dampening output as opposed to inherent weakness in demand,” he added.