–Sept MNI Chi Report Business Barometer Down 3.3 to 49.7 vs 53.0 Aug
–Sept New Orders Falls 7.4 to 47.4 vs 54.8 in August

By Denny Gulino and Alyce Andres-Frantz

CHICAGO (MNI) – After 35 months of expansion, the MNI Chicago
Report’s Business Barometer slipped just under the breakeven line in
September to 49.7 seasonally adjusted, pulled into contraction by
declines in orders, backlogs, production and employment.

The 7.4-point drop in New Orders was the largest since May of last
year and took that index to 47.4, its lowest since September 2009,
which was the previous low for the overall Barometer.

The report reflected the continuing general weakening, with
declines in five of seven Business Activity indexes, extending and
deepening a general trend that began in the spring.

–The Production Index slowed by 2.0 points to 55.4. Since
rebounding from May’s reading, when this index fell to the neutral
50.0, it has been no lower than July’s 54.5.

–Order Backlogs, which has only been above 50 once in five months,
was little changed at 41.6 in September.

–Employment was down 5.1 points to 52.0 for the month, a
two-and-a-half year low. The hiring index peak for this year was
February’s 64.2 and since then the index has rocked up and down in
alternate months, steadily inching to new lows.

–Supplier Deliveries was the only one of the five indexes which
comprise the overall Business Barometer to post an increase of any size,
edging up 2.2 points, enough to be in plus-50 positive territory. At
52.1, it remains 9.4 points below where it started the year, and
suggests vendors are still making timely deliveries, with no appreciable
stress to the supply chain coming from that direction.

–Elsewhere in the report, Inventories accumulation slowed as it
has in all but two of the nine months this year, this time very
slightly, to a four-month low of 51.1. The three-month average is 51.6
through September, its lowest level since February.

–Prices Paid rose for a third month, up 6.2 points to 63.2. As
high as 70.1 in March and as low as 54.0 in June, this index has shown
some acceleration for three consecutive months.

“The three-month moving average (of the Business Barometer) has
been falling for six months” not counting a minuscule uptick in August,
Chicago Report founder Jack Bishop said. September “was one more step
in a long slow slide and it doesn’t look great for through the end of
the year.”

“In May, the third consecutive month of decline of the Chicago
Business Barometer signaled the beginning of a recession in six to 12
months. The September report adds additional support for the view that
the economy is approaching or in the early stages of a recession,” he
said.

Bishop acknowledged the possibility that accumulating
uncertainties, including the November election and euro zone, Middle
East and Chinese economic conditions may be depressing the survey
responses.

“Having the election over is one of those events sure to help out
because it’s going to remove some uncertainty,” he said. Whether
election results alone will be enough to reset expectations, however, is
another question.

“When you look at the trend in the three-month moving averages it
is adding to my concern,” Bishop said. “We may well have crossed into
recession, although we don’t know for a year or more.”

Several of the extended responses included by some survey
participants reinforced the impression that uncertainty about the
future, not just current results, weighed on their outlook. “Uncertainty
about taxes, regulations and public policy going into 2013 is causing
spending decisions to be deferred or constrained until the picture is
clearer,” one wrote.

“Overall uncertainty with respect to government policies continues
to make us hesitant to make significant investments in new areas,” wrote
another.

Another cited the drought as a negative factor and the “election
year, recent changes in Gulf weather,” as all playing “into short-term
and long-term prices of materials.” Still another observed, the
“marketplace still seems unsettled.”

There were some positive comments as well, with some seeing
“companies are starting to move forward again, Projects that have been
on hold are again being discussed.” Said another, “August was slow, but
our sales orders for August boomed towards the end of the month. We will
see very good September and October results.”

The report’s measures of lead times varied, with Production
Material adding 10.5 days, mirroring the 10.6-day drop in the previous
month. Maintenance, Repair and Operations supplies, which do not
contribute to the end product, stayed at 9.4 days in September. Capital
equipment supplies slipped 11.4 days to 109.9, not far from its average
for the year of 115.08.

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

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

[TOPICS: MAUDS$,MT$$$$,M$U$$$,MAUCS$]