Business activity in the U.S. cooled more than projected in June, a regional report showed, as fiscal constraints and stagnant export markets buffeted manufacturers.
The MNI Chicago Report’s business barometer dropped to 51.6 this month from 58.7 in May, which was the highest in more than a year. A reading of 50 is the dividing line between expansion and contraction. The median forecast of 55 economists surveyed by Bloomberg was 55.
The Chicago index has been out of synch with other regional factory reports, surging in May when others pointed to a slump, and dropping this month as measures from the Federal Reserve Banks of New York and Philadelphia point to a rebound. Manufacturing, which makes up about 12 percent of the economy, might be feeling the effects of federal government spending cuts that went into effect in March.
“A large part of it reflects pullbacks in government spending,” Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said before the report.
“That’s having effects, although not massive effects. The manufacturing sector doesn’t appear to be accelerating but it’s not deteriorating at least.”
Economists’ forecasts for the Chicago group’s gauge ranged from 51.5 to 58.5.