Chicago Biz Barometer: Midwest Manufacturing Activity Contracts In February

Midwest manufacturing activity fell to its lowest level since July 2009, according to the latest Chicago Business Barometer. The index formerly known as the Chicago Purchasing Managers Index, and an affiliate of the Institute of Supply Management (ISM), tumbled to 45.8 in February from January’s 59.4.

The closely-watched barometer fell below the 50-point threshold, which indicates that business activity is contracting for the first time since April 2013. The sharp fall in business activity in February came as Production, New Orders, Order Backlogs and Employment all saw double digit losses.

ISM said the West Coast port strike and the harsh winter “probably had a negative impact in February,” though it is difficult to gauge the magnitude if any at all.

“It’s difficult to reconcile the very sharp drop in the Barometer with the recent firm tone of the survey,” said Philip Uglow, chief economist of MNI Indicators,. There’s some evidence to point to special factors such as the port strike and the weather, although we’ll need to see the March data to get a better picture of underlying growth.”

The report also indicated that organized labor has negatively impacted manufacturing activity, particularly over the ongoing strike over more benefits:

Supplier Deliveries was the only component to increase between January and February with the port strike at least partly to blame. Unseasonably cold weather and the extreme blizzards seen on the East Coast also had an impact.

Purchasing managers reported days to source capital equipment were at the highest level since March 2008. New Orders suffered the largest monthly decline on record, leaving them at the lowest since June 2009. Lower order intake and output levels led to a double digit decline in Employment which last month increased markedly to a 14 month high.