Midwest Business Growth Much Slower Than Expected

The Chicago Purchasing Managers on Tuesday said business activity in the the Midwest expanded in May for a 25th straight month but grew much more slowly than expected, suggesting regional manufacturing growth has stagnated.

The National Association of Purchasing Management-Chicago (search) business barometer, slumped to 54.1 from 65.6 in April. Economists had forecast the index at 62.0. A reading above 50 indicates expansion in the sector.

Though the index gauges both manufacturing and services, economists view it more of as a factory index because the region is relatively industrialized.

"The clear message is that growth in manufacturing activity in the Chicago area downshifted in May," said Dana Johnson, chief economist at Comerica Bank (search) in Detroit.

Ultimately, weakness in manufacturing could push the Federal Reserve to slow its program of interest rate hikes earlier than planned, they said.

The National Association of Purchasing Management-New York (search) said business conditions in New York City cooled in May in part due to seasonally chilly temperatures and a drop in the manufacturing index.

The National Association of Purchasing Management-New York said its business conditions index eased to 337.3 in May from 341.2 in April, the first decline in the index this year.

However, New York businesses remain relatively optimistic about the outlook, NAPM said.

Tuesday's report raised the prospect of a weak Institute for Supply Management (search) national factory report on Wednesday. The May ISM index is forecast at 52.1, down from 53.3 in April.

However, analysts noted that the Chicago index has been skewed far above ISM in recent months and might have been playing catch-up.

"The Chicago PMI has been running higher than the other numbers and that would bring it more in line with the national number," said Gary Thayer, chief economist at A. G. Edwards and Sons in St. Louis.