By Denny Gulino and Alyce Andres-Frantz

CHICAGO (MNI) – The MNI Chicago Report remained stable in July, as
its Business Barometer showed an 0.8-point improvement to 53.7
seasonally adjusted, as gains in New Orders and Order Backlogs were
offset by weakness in Production, Employment and Supplier Deliveries,
according to the report released Tuesday.

Particularly notable was the way New Orders recovered some
strength, accelerating a full point to reach 52.9 after four consecutive
months of decline had taken it to a 33-month low in June.

Order Backlogs, another one of five Business Activity Indexes from
which the Barometer is derived, gained 10.6 to reach 52.8, crossing back
into expansion after two previous months of outright declines.

But the offsetting factors for July meant the month’s performance,
in line with that of June, was still somewhat short of a strong rebound
from the general weakening evident in the spring.

Production slowed to 54.5, a 2.5-point step back from 57.0 in June.
Employment dropped 7.1 points to 53.3, its lowest since May 2010.

Supplier Deliveries decelerated a second month to 53.3, a 0.9-point
difference and the fourth contraction this year, yet modestly stronger
than its long-term average.

Elsewhere in the report, Prices Paid rose 0.7 point to 54.7,
well below the year’s peak in March of 70.1.

The Inventories index showed accumulation slowed with a 0.9
reduction from June to 52.6.

“All in all, the July MNI Chicago Report has a little bit for
everyone, characterizing the current U.S. economy as continuing modest
growth with restrained inflation,” said Jack Bishop, founder of the
Chicago Report. “The good news is it didn’t get any worse, but it hasn’t
gotten a lot better either.

“Organizations continue to expand employment, but at the slowest
rate in a year,” Bishop said.

Despite the negative connotation for the economy with the
Employment index down 7.1 to 60.4, Bishop said the backtracking in the
index was “actually good” as it rendered it more “realistic, consistent
with other measures of business activity.”

Beginning in October the employment index has been up one month and
down the next, a see-saw pattern of steady slowing. “In spite of the
fall, the Employment index has remained above the average from 1946 of
50.8,” he said.

“This is kind of a lull, status quo ante,” Bishop said. “Business
is usually slower this time of year,” he said, adding that December and
June seasonal adjustment factors took off 2.0 and 1.1 from the overall
Barometer, respectively.

But, he added, this lull certainly does not “wave off” recent
signals from the Chicago Report suggesting a recession may be
forthcoming near the turn of the year.

In that vein, he said the three-month moving average of all seven
Business Activity indexes fell in July, an “unusual” bit of synchronous
behavior. Since the inception of the report in 1946, that has been the
case only 11.8% of the time — covering 787 monthly releases.

That the three-month readings of the seven indexes converged
through July to one point either side of 53.4 was another sign the
economy is still in expansion, he said.

Throughout the report, 50 indicates the neutral point above which
there is expansion.

The report includes three Business Policy indexes, with the lead
time for Production Materiel jumping five days to 40.3, “above the
short-term trend and indicating stronger product demand or
alternatively, some influence from constraints in the supply chain,” he
said.

The volatile lead time of MRO supplies, which added 2.7 to reach
11.4 days, remains below the three-month moving average of 11.9 days.

Capital Equipment lead time fell a little over three days to 112.6
days, still above long-term averages but below the short-term trend, he
said.

Some of the month’s respondents included comments in their
responses, among them one which said, “Our orders are steady, but no
large spikes.”

Another said, “Business is getting extremely quiet. Summer
vacations? Election year? Euro crisis? I wish we knew.”

Still another wrote, “The number of new orders remains erratic.
This month was very good, the previous three, not so good.”

A few other respondents cheered the ebb in fuel and oil prices but
some lamented that the drought has hit crop prices and more broadly,
that “global economic issues are still a threat to prices.”

Bishop said higher grain prices may have some lasting effects for
companies as price spikes “take some time to roll out, due to an uptick
in the cost of buying and rolling hedges.” Furthermore, increases in
grains may reduce U.S. exports and increase demand for foreign supplies.

The composite Business Barometer index within the MNI Chicago
Report — derived from Production, New Orders, Order Backlogs,
Employment and Supplier Deliveries — has a little more than a third
drawn from New Orders.

The monthly survey panel is primarily drawn from the membership of
the Institute for Supply Management-Chicago and covers services as well
as manufacturing activities of the global operations located in the
region.

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

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