Chicago Business Barometer Plunges to 47.1, Returning to Contraction

The Chicago Business Barometer fell sharply in August, reversing the previous three months of expansion and signaling renewed weakness in business activity across the Chicago area. The index dropped 10.5 points to 47.1 from 57.6 in July, moving below the neutral 50 level for the first time since April and reaching its lowest reading since December.

The reversal was broad enough to matter beyond the headline number. New orders, order backlogs, production and supplier deliveries all deteriorated during the month, according to the latest survey, while employment provided only a limited offset. The move also erased July’s modest improvement, when the barometer had edged up 0.9 point and remained above 50 for a third straight month.

New orders and production reverse July’s momentum

ISM Chicago said the August decline was driven by weaker new orders, order backlogs, production and supplier deliveries. The organization, working with MNI Indicators, surveys purchasing and supply management professionals in the Chicago area each month to assess whether conditions at their companies are improving, unchanged or deteriorating.

The underlying figures show how quickly the demand picture changed. New Orders dropped 15.4 points in August after having been the main source of strength a month earlier. In July, stronger new orders had helped lift the headline barometer even as several other components weakened. The August decline therefore represents more than a routine pullback in the composite index. It indicates that the source of July’s improvement reversed sharply.

Production fell 8.8 points and moved into contraction for the first time since December. Order Backlogs dropped 12.1 points, also falling below 50 and reaching their weakest level since November. Together, those readings point to less incoming work and a thinner pipeline of unfinished orders, a combination that can weigh on future output if it persists.

Supplier Deliveries eased 2.6 points but remained above 50 for a nineteenth consecutive month. In diffusion indexes, a supplier-deliveries reading above 50 generally reflects slower deliveries rather than stronger demand by itself, so that component needs to be interpreted differently from production or new orders. Its modest decline was not enough to offset the much larger deterioration in the demand-sensitive parts of the survey.

Inventories also fell 14 points, returning to contraction after only one month above the neutral threshold. That swing adds another sign that firms were not continuing July’s inventory build at the same pace. Inventory changes can reflect several factors, including demand expectations, supply availability and deliberate stock management, so the reading does not establish a single cause. It does, however, reinforce the breadth of August’s retreat.

Employment improves even as cost pressure rises

Employment was the main counterweight to the weaker activity indicators. The employment index rose 4.3 points, moving into expansion for the first time in five months. That improvement is notable because employment had remained below 50 through July even as the headline barometer stayed in expansion territory. August produced the opposite combination: a softer overall activity reading alongside a better employment component.

The jobs signal should still be read cautiously. A single monthly diffusion-index move does not translate directly into payroll growth, and the Chicago survey is regional rather than a comprehensive measure of U.S. employment. Its value is in showing how participating firms describe conditions compared with the prior month, not in estimating a specific number of jobs created or lost.

Cost pressure also intensified. Prices Paid increased 3.8 points to its highest level since February 2022, with some respondents citing higher metal costs. The rise is important because it occurred at the same time that demand and production indicators were weakening. That mix can complicate the outlook for businesses facing softer activity without corresponding relief on input expenses.

The August report’s special question focused on how companies have responded to unexpected increases in material or market costs amid geopolitical tensions, trade uncertainty and supply-chain disruption. ISM Chicago publishes the barometer through the MNI Chicago Report, which includes seven business-activity indicators and three buying-policy indicators. The survey is designed as a regional view of business conditions and has been produced for more than seven decades.

Regional weakness contrasts with July’s national manufacturing strength

August’s Chicago reading arrives after a much stronger national manufacturing picture in July. The national ISM Manufacturing PMI registered 55.6 in July, up 2.3 percentage points from June and its highest level since May 2022. New orders stood at 56.7, production at 58.5 and employment at 52.8 in that national survey.

The contrast does not mean one report invalidates the other. ISM explicitly cautions that its national manufacturing report should not be confused with regional purchasing surveys. The Chicago Business Barometer reflects respondents from the Chicago area, while the national PMI is based on a broader panel of supply executives across U.S. manufacturing industries. Regional reports are also not used to calculate the national ISM results.

That distinction matters after a monthly swing as large as August’s. The Chicago barometer has historically been watched as an early indicator of business conditions, but one regional reading is not enough to establish that U.S. manufacturing as a whole returned to contraction. The sharper message is narrower: Chicago-area respondents reported a clear loss of momentum in August, led by demand and production components, after three months in which the headline index had been above 50.

At the same time, the price component prevents the report from being read simply as a story of cooling demand and easing pressure. The combination of weaker orders and firmer prices paid suggests businesses may still be dealing with cost strains even as activity softens. The employment improvement provides a partial counterpoint, but it was not large enough to keep the composite measure in expansion.

The next national comparison arrives soon. ISM is scheduled to release its August Manufacturing PMI at 10:00 a.m. ET on Tuesday, September 1. That report will provide a broader test of whether the weakness captured by the Chicago survey was mainly regional or part of a wider loss of manufacturing momentum.