Fall in Business Barometer

Economic activity slowed in September, according to a closely watched index that showed signs of improvement only a month earlier. The Institute for Supply Management-Chicago said Wednesday that its business barometer fell to 46.1 in September from a neutral 50.0 in August. The August barometer reading marked the fist time in almost a year that the data didn't reflect economic contraction. The September barometer was far weaker than economists expected. The Dow Jones Newswires survey predicted a 52.5 reading, which would have signaled economic expansion. ISM-Chicago gathers the monthly data by surveying Chicago-area purchasing professionals for their views on the economy. Stock market prices fell Wednesday in reaction to the disappointing data, causing Treasury yields to fall as well. It isn't unusual for the barometer to stumble during and after a recession, an ISM-Chicago news release stated. The barometer softened in the month after the 2001 recession ended, and did the same after reaching the neutral 50.0 reading after the conclusion of the recession lasting from November 1973 to March 1975. The September stumble still kept in place what appears to be a bottom established for this recession when the barometer sunk to 31.4 in March. As has been the case with other economic data, the employment sector appears to be among the weakest links on the road to recovery. ISM-Chicago's employment index was at 38.8 in September, from 38.7 in August. ISM-Chicago said the index revealed that for every three companies that reduced staff in September, only one firm was hiring employees. Significant declines in new orders and order backlogs helped drag down production, ISM-Chicago reported. The new orders index fell to 46.3 in September, from 52.5 in August. Order backlogs plunged to 36.7 in September, from 45.8 in August. The production index stood at 47.2 in September, down from 52.9 in August. Wednesday's data came on the same day that the Commerce Department said second-quarter gross domestic product - a measure of all goods and services produced in the U.S. - decreased at a 0.7% annual rate, smaller than the previous estimate of a 1% slide, and substantially better than a 6.4% drop in the first quarter. In recent days, some members of the Federal Reserve indicated they might have to implement a series of aggressive increases in the federal-funds rate if the recovery from a severe recession generates an inflation threat. Investors monitor the ISM-Chicago report for indications how purchasing managers nationwide feel about the economy. The Institute for Supply Management's manufacturing index is due Thursday at 10 a.m. EDT. Economists forecast the national ISM index will rise to 54.0 in September, from 52.9 in August. The Chicago Business Barometer is compiled for ISM-Chicago by Kingsbury International.