Chicago Economy Soars

The Chicago economy keeps surging ahead, according to a new May Chicago Business Barometer report (link opens a PDF) released today by the Institute for Supply Management (ISM).

After clocking in at an already solid 63.0 for April, May's index increased an additional 2.5 points to hit 65.5, its highest reading since October and well ahead of analyst expectations of a 61.0 reading. 

The ISM creates its index from surveys of purchasing and supply chain professionals based in Chicago. An above-50 rating indicates expansion, while below 50 implies a contraction from the previous month. The
further an indicator is above or below 50, the greater or smaller the rate of change. Although the geographic focus is limited to the Chicago area, investors keep tabs on the index as a leading indicator of U.S. economic activity. 

According to the report, this month's continued expansion owes much of its success to cold weathered that slowed things down in Q1, with "companies playing catch-up to make up for lost output." As demand continued to pick up in May, order backlogs hit a three-year high. Production slipped slightly, but remained at a "high level," while employment fell just below its 12-month average. Inventories hit their highest point since November, a sign that businesses are expanding supplies for the summer months ahead.

According to Philip Uglow, chief economist for MNI Indicators (an ISM partner), "It looks pretty clear now that the slowdown in Q1 was due to the poor weather, with activity now back to or exceeding the level seen in Q4. The rise in the Barometer to a seven month high in May suggests we'll see a significant bounceback in GDP growth this quarter following the contraction in Q1."

Uglow went on to note in a statement that this latest report, along with other recent positive economic reports, points to "more entrenched" growth in the months to come.

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