A widely followed measure of business activity in the Chicago region roared back in May, surging to its highest level in more than four years and delivering one of the strongest monthly gains on record — a clear sign of accelerating momentum in American manufacturing.
The Chicago Business Barometer, produced by MNI Indicators and ISM-Chicago, jumped 13.5 points to 62.7 in May, firmly returning to expansionary territory after slipping below the neutral 50 mark in April. Any reading above 50 indicates expansion compared with the prior month.
The monthly gain was the joint second-largest since the index was established in February 1967. The only larger single-month increase occurred in July 2020, when economic activity rebounded sharply after pandemic-related shutdowns.
The index’s new orders component — a key leading signal for future production and hiring — soared 18.2 points to its highest reading since January 2022. The production subindex advanced 11.9 points, extending a five-month streak of expansion.
Order backlogs grew 9.4 points, returning to expansionary territory, while supplier deliveries extended 3.6 points, largely reversing a decline in April. Employment was the lone soft spot among the index’s five major components, slipping 1.3 points, though it remained above March levels. In our supply-constrained labor market, reduced hiring plans are often not a sign of a company pulling back from growth but acknowledging that future growth will not come from payroll increases.
The report does indicate that businesses are experiencing cost pressures. The prices-paid component rose 3.5 points to its highest level since May 2022, with respondents citing higher oil prices and transportation fuel surcharges as key drivers of elevated input costs.
A standout feature of the May survey was a series of special questions revealing how Chicago-area businesses are actively repositioning their supply chains amid geopolitical risks and economic uncertainty. Fifty-two percent of respondents said they were increasing inventories of raw materials to build resilience. Roughly 54 percent reported diversifying their supplier base, while another 54 percent said they were strengthening collaboration with suppliers for better real-time visibility. Forty percent said they were shifting sourcing to suppliers outside regions affected by geopolitical conflict.
The Chicago barometer is often viewed as a precursor to the national ISM Manufacturing Index, scheduled for release Monday. That index has been stuck in contractionary territory for much of the past two years. A strong Chicago reading could amplify the signal of a broader manufacturing revival.
Federal Reserve officials, who meet next in mid-June, have held interest rates steady while watching for clear evidence that inflation is returning durably to their 2 percent target. A sustained rebound in manufacturing activity — especially if accompanied by rising price pressures — could complicate that calculus.
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