-Business Barometer +0.5 Points to 50.4; New Orders -5.4 to 45.3
By Denny Gulino and Alyce Andres-Frantz
CHICAGO (MNI) – Hemmed in by uncertainty and facing a still weaker stream
of new orders accompanied by higher prices, the MNI Chicago Report’s Business
Barometer improved just half a point in November to return to weak expansion, at
50.4.
The Barometer’s underlying momentum continued to slacken, with its
three-month average now having slowed for three months. At 50.1 in November,
that average has not been lower since October 2009.
Having slipped below 50 in two recent months and otherwise remaining in the
low 50s since May, the Barometer has registered the pervasive caution that has
come to characterize most of 2012 business activity.
The most heavily weighted of the Barometer’s five component subsidiary
indexes, New Orders, was down by a substantial amount, falling 5.3 points to
45.3, its lowest level since June 2009 and in contraction.
The New Orders decline was more than offset by the month’s increases in the
other four primary business indicators. Yet one, Order Backlogs, stayed under 50
for the sixth out of the last seven months despite November’s improvement. Order
Backlogs rose 5.3 points to 49.6, up considerably since the September low for
the year of 41.6, yet still slowing.
Supplier Deliveries continued to speed up, showing an unusually strong
acceleration of 6.9 points, to the highest level since March. The index has not
shown more acceleration in nearly five years but this is a somewhat mixed
signal: while a positive reflection on supply efficiencies, faster deliveries
can also reflect an easing of demand and signal some slack in the supply chain.
The fourth component of the Barometer, Production, rose 2.9 points to 54.7.
Employment rose 4.9 points to 55.2, leaving the neutral zone of 50.6 to
which it dropped in October and generally tracking Production.
Outside of the core indexes, November inventories remained in contraction
for the second month, and the 2.5 point drop was the fifth decline in a row and
the eighth this year. At 47.1 the index is at its lowest in two years, nine
months.
The Prices Paid index reflected a major boost, jumping 10.8 points in the
month to 70.1. The last comparable jump was October 2010 when the index
increased 10.3 while August 2009 posted a 13.7 surge. The latest price index
matches March, while the average for the year through November is 57.3.
Chicago Report founder Jack Bishop saw evidence in the report the economy
still teetering “on a balance beam.” Uncertain holiday season demand, a
near-term future clouded by the hard-to-quantify threats of fiscal cliff
austerity and tax hikes, the background of East Coast weather disruptions, a
couple of holidays and the distraction of the election converged during the
month.
“We’re all waiting for something good to happen,” Bishop said. “Inventories
are staying under pressure and risk adverse management hasn’t made any mistakes.
In fact, with a risk adverse consumer along with risk-adverse management, the
plane never leaves the ground.”
If there is a silver lining in the escalating price index, it might be
there is more pricing power in the marketplace, Bishop suggested. The price
index also may be influenced by temporary factors such as a demand/supply
imbalance related to superstorm Sandy.
Overall, increases in production, he said, “cannot be sustained by falling
orders and contracting backlogs.”
The MNI Chicago Report also gauges lead times for three classes of
products, with that for Production Materiel significantly lower in a second
month of faster deliveries. November’s 9.8-day subtraction narrowed lead time to
27.4 days, the shortest since February 2010. It was slightly above 40 as
recently as September.
For maintenance, repair and operations supplies, the lead time shortened by
5.5 days to 8.4, more than wiping out the lengthening in October and hitting the
fastest delivery time since January 2011.
For capital equipment, the lead time increased 2.9 days to 106.6. Aside
from the October reading of 103.7, it was the shortest lead time since August
2010.
A sampling of responses that some of those surveyed included spanned the
spectrum, from pessimism to those hoping for a burst of pent-up activity on the
horizon.
“The economy really seems to be hanging on a thread,” one wrote. “I do not
think that upward price movements can be sustained at a time when real growth is
questionable.”
Another wrote, “Business sales (have) been slowing throughout the year and
continue to slow, but now at an increasing rate, becoming very alarming.”
Another cautioned: “The fiscal cliff looms over us as our biggest customers
are defense contractors.”
From the opposite perspective, one said, “We are officially swamped and
doing everything we can to get our machines out this year … Some will bleed
into 2013.”
And another wrote, “Several large orders continue to ‘pend’ but several
smaller orders have kept our backlog up. Next year still looks very promising.”
The monthly survey panel’s responses, coming from primarily members of the
Institute for Supply Management-Chicago, cover services as well as manufacturing
activities of firms in the region, whose customer base can be very local as well
as global.
** MNI Chicago Bureau: 708-784-1849 **
[TOPICS: MAUDS$,MT$$$$,M$U$$$,MAUCS$]