Chicago Business Barometer catches cold winds of contraction in September

The Barometer is a diffusion index, where a reading above 50 indicates improving business conditions and a reading below that indicates contraction. Summarizing current business activity in the region, it is considered a leading indicator of the broader US economy.

The index has remained below 50 for 22 consecutive months.

Subindices

After five months of declines, the production subindex rose 3.8 points in September. However, new orders and order backlogs continued to retreat, underscoring sluggish demand. Although expanding for an eighth consecutive month, supplier deliveries fell back 6.4 points to the lowest level since January.

Employment eased 4.1 points to the worst reading since June 2009. “September saw the largest proportion of respondents reporting smaller employment levels since the immediate aftermath of the 2008 Global Financial Crisis,” MNI and ISM noted.

Special questions

The report asked how changing financial conditions are affecting respondents’ suppliers or clients. Almost half (46%) said there’s been no noticeable impact. Still, 18% reported reducing or exiting borrowing due to higher interest costs, and another 14% said they are facing challenges due to tighter credit conditions.

Regarding their hedging plans for the next year, nearly 60% of respondents reported having no plans for hedging. Nearly 30% said they will use natural hedging through operational decisions, while ~15% said they will use commodity hedging, and less than 5% plan to use FX hedging.