--Double Digit Gains in New Orders, Production, Backlogs --Inventory Replenishment, New Products/Distribution Aid Demand --Only Third Time Barometer Up Four Consecutive Months in Past Decade
By Alyce Andres
CHICAGO (MNI) - The MNI Chicago Business Barometer posted a solid 10.2-point gain in October to 65.9 amid double-digit strength in Orders and Production data, according to the report published Thursday.
The result was well above the MNI survey forecast of 55.5. The survey period spanned from October 1 to October 24.
The huge gain was the biggest month-over-month boost in over 30 years (July 1983 +12.7) and placed the activity gauge at its best level since March 2011. It also was only the third time the Barometer has gained in four consecutive months in the past decade.
Four of the five business activity measures that comprise the Barometer expanded in October.
Business activity was led by a surge in New Orders to 74.3 from 58.9 in September. The gain in New Orders was the largest monthly advance since March 2007 and placed New Orders at the highest since October 2004.
In line with New Orders data, Backlogs expanded by 14.3 points out of a prolonged period of contraction to 61.0, its best since March 2011 and its largest monthly gain in over 30 years.
Chicago area business expanded at a surprisingly steep pace with some panelists reporting brisk activity with increased ordering linked to inventory replenishment, increased customer demand, success of new product lines and new distribution channels.
Meanwhile, Production, weighted at 25% of the Barometer's calculation, expanded by 13.1 points to 71.1, its highest since February 2011 and its largest monthly rise since October 2004 when it was up 16.2.
Employment expanded to 57.7, a 4.5-point increase from the prior month as businesses added to their labor force to keep up with demand. However, employment remains below both New Orders and Production. Purchasers told MNI that callbacks from previous layoffs, part-timers and interns who filled the gap.
Elsewhere, Supplier Deliveries, the final component of the Barometer, was down 1.4 points to 52.3. The slip in lead times was inconsistent with the burst of activity in October, however, they have inched longer over the course of the year.
Inventories expanded at a slower rate, up 2.0 to 48.0 in October while Prices Paid were off an inconsequential 0.4 to 56.7.
The three Buying Policies were mixed with days to source Maintenance, Repair and Operations up 6.7 days to 16.1 days, its longest since December 2010 while days to source Production Materiel was longer by 3.3 days to 41.5 days. Anecdotal reports indicated repairs were a bigger factor in October, typical of periods of heavy use of manufacturing equipment.
A shortening of 7.2 days in lead times to buy Capital Equipment, to 100.3 days - the least in almost three years - was inconsistent with the overall health of the October data.
Business activity in 2013 has seemed to be subject to spurts of activity, then lulls. Two similar boosts were seen earlier in 2013, but not quite with the scope of current data.
For example, in May the data showed the Barometer gained 9.7 points to 58.7, Production surged 12.8 points to 62.7, Order Backlogs expanded by 12.5 to 53.1, New Orders tacked on 4.9 to 58.1 and Employment added 8.4 to 56.9. However, June's data showed a sharp correction lower.
Similarly, January's data was subject to a surge with the Barometer ahead by 5.6 to 55.6 with Production up 8.5, New Orders up 7.8, Backlogs up 1.5 and Employment up by 11.2. January's burst was followed by weakness through April.
One survey panelist concurred with the October data stating, "We are in our busy season and it is not disappointing. We just received some large orders and have more coming in the pipeline to be built and delivered before year end."
Another said, "Increased order intake has led to a worker call-back from previous layoffs."
However, a third said, "Business is flat."
Despite a small decline in Prices Paid, one survey panelist noted, "Petroleum-based products went up."
In addition, purchasers told MNI of what they saw as continually rising chemical prices apparently due, at least in part, to consolidation of U.S. chemical firms and an increasing need to ship from overseas. In addition, oil prices have been a consistent influence on the chemicals from they are derived.
Others cited China's potential to impact commodities in 2014 and concerns that the U.S. economy will not grow in 2014 because of fiscal headwinds.
More locally, a panelist noted, "Illinois taxes and deficits long-term looking bad."
--MNI Chicago Bureau; tel: +1 708-784-1849; email: aandres@mni-news.com