Tuesday 30 June 2009

Chicago Business Index Shows Economy Shrinks At Slower Pace

Chicago Business Index Shows Economy Shrinks At Slower Pace
   By Howard Packowitz

CHICAGO -(Dow Jones)- The pace of economic contraction slowed in the Chicago area during June, bolstering the view that the U.S. economy will break out of its deep recession late this year.

The Institute for Supply Management-Chicago said Tuesday that its Chicago Business Barometer, formerly known as the Chicago PMI, rose to 39.9 in June, from 34.9 in May and 40.1 in April.

The last three barometer readings were all above the March figure of 31.4, which was the lowest in almost 29 years.

Based on the recovery that took place following the deep recession of the early 1980's, ISM-Chicago projects that this recession will end by December 2009.

The June barometer reading remained below 50.0, which shows continued economic contraction.

The latest data came in above economists' estimates. They forecast a 39.0 reading for June, according to the Dow Jones Newswires survey.

The Chicago report was released amid uncertainty among investors whether the economy is improving.

Some members of the monetary policy making Federal Open Market Committee have in recent weeks that they expect the economy to show some signs of growth in the second half of this year. However, they don't see a pick-up in employment until 2010.

The FOMC said after its most recent policy session last Wednesday that the pace of economic contraction is slowing, although economic activity is "likely to remain weak for some time."

The panel opted to keep the key short-term fed-funds rate at a lowest-ever range of zero to 0.25%, where it has stood since last December. Many investors believe the rate will stay at that level for a long time.

In a news release, ISM Chicago said "support for an impending end to the current recession was found in increased index values for both new orders and order backlogs."

New orders rose to 41.6 in June from 37.3 in May. Order backlogs improved to 37.6 in June, the highest since October 2008. May order backlogs stood at 26.3.

An increase in the June's prices paid index "signals improvement in an economy that is still shrinking, but at a slower rate," ISM-Chicago said.

The prices paid index increased to 36.3 in June from 29.8 in May.

"While purchasing professionals seldom welcome increased prices, economists view increases in the prices paid index as an indication of firming demand," the news release said.

ISM-Chicago reported a modest improvement in its employment index, although it posted in 19th consecutive month of sub-50 readings.

The employment index stood at 28.9 in June from 25.0 in May.

The Chicago report is closely followed because it comes a day before the release of data on national manufacturing.

The Institute for Supply Management is scheduled to release its monthly manufacturing index Wednesday at 10 a.m. EDT.

The consensus estimate of economists surveyed by Dow Jones Newswires projected a June ISM reading of 45.0, from 42.8 in May.

The Chicago Business Barometer and the accompanying data are compiled by Kingsbury International.

Next month's index is scheduled to be released on July 31.

-By Howard Packowitz, Dow Jones Newswires; 312-750-4132; howard.packowitz@dowjones.com.

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(END) Dow Jones Newswires

June 30, 2009 10:50 ET (14:50 GMT)

Copyright 2009 Dow Jones & Company, Inc.

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