Chicago Business Barometer: Midwest Manufacturing Cools in July

The Chicago Business Barometer, also known as the Chicago PMI, fell to 54.4 from 54.7 in July, though it held above its 6-month average of 49.1. Economists surveyed by The Wall Street Journal expected the index to register at 54.5. A reading above 50 indicates expansion, while below 50 indicate contraction.

“It was pretty much steady as she goes in August with orders and output just about holding on to July’s gains,” said Philip Uglow, Chief economist of MNI Indicators. “While the slowdown earlier in the year looks temporary, we’re still some way below the strong growth rates seen towards the end of 2014,” Mr. Uglow added.

Most of the Business Barometer’s subindexes declined in August, with order backlogs falling 1.7 points to 46.2, posting the seventh straight month of contraction.

“We continue to muddle along,” said Alyce Andres-Frantz, MNI Chicago bureau chief. “Backlogs aren’t there, and purchasers aren’t hiring.”

While employment–fueled in part by July’s surge in output and orders–increased in August to the highest since April, the labor component remained in contraction for the fourth consecutive month. From July, the gauge rose 2.9 points to 49.1. In response to a special question, 63% of survey participants said they didn’t plan to expand their workforce over the next three months, and roughly 10% of respondents said they plan to hire permanent workers, and the numbers “are tiny,” Ms. Andres-Frantz said.

Production and new order indexes cooled, but both remained above their 12-month averages and were up from the abysmal levels reported from February to June. The prices paid gauge fell sharply to 47.3, down 7.2 points from July amid steep declines in commodity prices. Supplier deliveries rose into expansion, hitting the highest level since March.

Meanwhile, the August survey was conducted before the crash in Chinese markets, though Ms. Andres-Frantz noted that purchasers are viewing the downturn as a “temporary blip.”

Chicago PMI is among the last of the regional manufacturing surveys before the national Institute for Supply Management gauge is released Tuesday morning. Regional data has been mostly disappointing this month, with New York, Richmond and Kansas City manufacturers also reporting declines in activity while Philadelphia-area producers reported a modest uptick.