Chicago Manufacturing Sector Contracts In February

(Kitco News) - Renewed momentum at the start of the year didn’t last as the manufacturing sector in the Midwest appears to be losing ground in February, according to the headline index for the Chicago Business Barometer, widely known as the Chicago Purchasing Managers Index.

Monday, The Institute of Supply Management said that that its regional index fell into contraction territory to a reading of 47.6, down from January’s reading of 55.6. Analysts were bracing for some weakness as consensus forecasts were calling for a reading of 52.1.

"The Barometer’s decline was led by an 18.5 drop in Production, which completely reversed January’s near 16 point gain, pushing it back into contraction," the report siad."Firms continued to drawdown stocks in February, with Inventories remaining in contraction for the fourth consecutive month."

The report also noted weakness in new orders and the labor market.According to the press release, the employment index fell to its lowest level since November 2009 and has been in contraction territory for five consecutive months.

Inflation pressure also remain week as the report said the prices paid index fell to its lowest level since July 2009 "oil and other commodity prices continued to fall."

“If one looks beyond the gyrations seen over the past three months then trend activity has been running a little below the 50 neutral mark, highlighting continued sluggish activity levels, with manufacturers under particular pressure," said chief economist of MNI Indicators Philip Uglow."Still, given the weakness in Q4, it looks like activity should pick up during Q1.”

Other regional manufacturing reports, while showing some improvement this month, remain firmly in negative territory. Two weeks ago the New York Federal Reserve said that its manufacturing sector bounced off recession lows but was still weaker than expected showing a reading of -16.6, up from January’s reading of 19.4. A few days later the Philadelphia Federal Reserve said its manufacturing survey index showed a reading of -2.8 in February, up from -3.5 in January.

Although the Chicago regional data was weaker than expected, it doesn’t come as a major shock as economists have consistently highlighted slowing growth in the manufacturing sector. The Federal Reserve has noted several times that a stronger U.S. dollar has had a significant impact as it has made the country’s exports more expensive.

By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow Neils Christensen @neils_C