2012.05.31 18:51:07 ISM-Chicago Data: Waning Factory Orders Threaten US Recovery

By Howard Packowitz Of DOW JONES NEWSWIRES CHICAGO (Dow Jones)--Shrinking order backlogs and inventories for U.S. manufacturers threaten the nation's economic recovery and raise the risk of a recession, a survey of Chicago area purchasing managers indicated Thursday. The Institute for Supply Management-Chicago reported its business barometer fell 3.5 points in May to a near 2 1/2-year low of 52.7, the third straight monthly decline. Three consecutive declines are "associated with the onset of each of the last seven national recessions, with a lead [time] of some six-to-eight months," ISM-Chicago said in a release. May marked the measure's 32nd consecutive month above 50.0, which reflects economic expansion. However, the index's inventory and order backlog components signaled a contraction in the economy. The reading on inventories fell to a two-year low of 49.4, while order backlogs' 46.3 reading was the lowest since October 2009, ISM-Chicago reported. Companies are "eating through any pre-existing orders they had," said Andrew Wilkinson, chief economic strategist for Miller Tabak & Co. A purchasing manager who participated in the survey said, "our backlog only takes up through the end of June." Another participant told ISM-Chicago the decline in backlogs for one business led to the first workforce reductions since the late 1970's. ISM-Chicago's employment index reflected continued expansion in the labor market, but at a slower pace. May's employment index was at 57.0, from 58.7 in April. Production fell to a neutral reading of 50.0 in May, down 7.1 points from April and 18.6 points from March. The ISM-Chicago report provides additional evidence that the economy has lost momentum gained earlier this year. Labor Department data released Thursday showed the number of workers filing for unemployment benefits rose by 10,000 to 383,000 for the week ended May 26. Additionally, the latest reading on gross domestic product--a measure of all goods and services produced in the U.S.--rose just 1.9% in the first quarter. On Friday, the government is scheduled to release its monthly employment report. The ISM-Chicago report "fits with other signs of weakness in the U.S. economy, and the question is now how long will this lull last," said Wilkinson. The business barometer is formerly known as the Chicago Purchasing Managers Index, or Chicago PMI. Purchasing managers participating in the survey do business beyond the Chicago region, thus providing a snapshot of nationwide economic activity. The purchasing managers, according to ISM-Chicago, represent various sectors of economy including retail, manufacturing, and resources. Kingsbury International compiles the data for ISM-Chicago. Deutsche Boerse AG (DBOEF, DB1.XE) purchased Kingsbury's assets in June 2011. -By Howard Packowitz, Dow Jones Newswires; 312-750-4132; howard.packowitz@dowjones.com. (END) Dow Jones Newswires May 31, 2012 12:51 ET (16:51 GMT)