–MNI Chicago Report Business Barometer +0.2 to 49.9 vs 49.7 Sept
–Special Question Shows 66% Think Business Better Than Year Earlier

By Denny Gulino and Alyce Andres-Frantz

CHICAGO (MNI) – For the second consecutive month the MNI Chicago
Report showed contraction in October, and remained mired in an sideways
movement, with the Business Barometer up 0.2 points to 49.9, seasonally
adjusted, according to data released Wednesday.

The three-month moving average for the Barometer and Production
fell for the third month and the level of the three-month moving average
for New Orders was at its lowest since September 2009.

With the Barometer below the breakeven 50, Production down, New
Orders ahead — but barely — and Order Backlogs well below 50 for a
third month, the report appeared to be more of the same in a relatively
lifeless progression of weak months since the spring.

-The Production business activity index slipped 3.6 to 51.8, the
sixth decline this year. It has been below 60 since April.

-New Orders was ahead by 3.2 points, but that brought it only
slightly above 50, at 50.6.

-Order Backlogs, although rising 2.7 points, remained well below 50
for the third month and except for July, has been below 50 since May.

-Inventories showed accumulation slowed to a halt, dipping below 50
for the first time since May. The 1.5 point decline took it to 49.6.

-Employment was down 1.7 points to 50.4, another of the business
activity indexes to show two consecutive declines in the three-month
moving average. With no change from July to August, the three-month
average has not seen an increase since June.

-Supplier Deliveries was down 1.7 points to 50.4, marking the
seventh monthly decline in its three-month moving average.

-Prices Paid, although dropping 3.9 points to 59.3, has shown an
escalating three-month average for two months.

Answers to a special question suggested that despite the pervasive
weakness, this year’s business activity compares favorably to last
year’s.

Asked how well their company is doing compared to a year ago, 66.3%
of the responses clustered in the positive half of the scale.

“There seems to be an equal headwind and tailwind,” Chicago Report
founder Jack Bishop said. “So there’s no progress but neither is ground
being lost.”

Bishop had noted in the spring that the three consecutive monthly
declines in March through May could be signaling trouble down the road
several months, and said it now appears the negative scenario is still
playing out, though being around the 50 neutral level still leaves open
what might happen next.

“I think it’s on a knife edge,” and both downside risks and upside
possibilities could influence the end of the year, though momentum
toward the upside is hard to see.

Downside risks include the often-mentioned uncertainty associated
with the election, the so-called fiscal cliff tax and spending issues
and whether QE3 will be modified as Operation Twist winds down.

Positive possibilities could include a further stabilization of the
Eurozone, a breakthrough in any Iran talks, more convergence towards
North Korea, some more definitive progress in housing and at least some
partial resolution of the fiscal cliff and debt ceiling issues.

Looking backwards, a factor in October was a week-long holiday in
China that can disrupt supply patterns when end-of-the year retail
inventories are being reinforced.

“Fifty (for the Barometer) doesn’t tell you anything about what’s
around the corner,” Bishop said.

The most important buying policy indicator, showing lead times for
capital equipment, fell for a second month, a move associated with
slower business activity. The lead time was down to 103.7 days in
October after rising to as much as 121.3 days as recently as August.

Production materiel ordering showed a 37.2-day lead time, about the
same as the 40.1 days in September. Compression of lead times generally
suggests capacity is not being taxed by the pace of business activity
and are an indicator of slower demand.

The volatile Maintenance, repair and operations (MRO) supplies,
which do not add directly to the finished product, showed a 13.9-day
lead-time compared to 9.4 in September.

Among the comments some respondents included was, “Wow, things are
getting interesting. It seems we are either heading for another crash or
that we may be turning the corner.”

Another wrote, “Suppliers seem to either have or perceive to have
more pricing power, with many attempting price increases.”

One was sharply negative, saying, “Things are not getting better.
Many of our suppliers are not optimistic.”

Another was very positive, seeing, “Orders are continue our way.
Quoting has slowed somewhat but we are expecting a tsunami of new
orders.”

The monthly survey panel is made up primarily of members of the
Institute for Supply Management-Chicago. The responses cover services as
well as manufacturing activities of the often global firms in the
region.

** MNI Chicago Bureau: 708-784-1849 **

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