Chicago Purchasers’ Index Climbed More Than Forecast

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By Shobhana Chandra

June 30 (Bloomberg) -- U.S. business activity shrank less than forecast in June, a sign the economic outlook is improving heading into the second half of the year.

The Institute for Supply Management-Chicago Inc. said today its business barometer increased to 39.9, from 34.9 the prior month. Readings below 50 signal a contraction.

An easing in the manufacturing slump and stabilization in consumer spending and housing reinforce forecasts that the recession will end this year. Still, even after record inventory cutbacks, companies may wait for sustained gains in sales before committing to adding employees and boosting investment.

“The manufacturing sector collapse is diminishing,” Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado, said before the report. Even so, “the numbers we’re seeing are still weak. We’ll have an anemic rebound.”

Economists projected the index would rise to 39, based on the median estimate of 58 economists in a Bloomberg News survey. Forecasts ranged from 32.5 to 44.

Another report showed home prices in 20 major U.S. metropolitan areas fell in April at a slower pace than forecast, a sign the plunge in real-estate values is abating.

Smaller Decline

The S&P/Case-Shiller home-price index decreased 18.1 percent from a year earlier following an 18.7 percent drop in March. The measure declined 19 percent in January, the most since the data began in 2001.

Treasuries dropped after the reports showed the recession was starting to ease. The yield on the benchmark 10-year note rose to 3.56 percent at 9:52 a.m. in New York from 3.48 percent late yesterday. Stocks were little changed.

The new Chicago report’s orders gauge rose to 41.6 from 37.3 the previous month and the production index climbed to 39.3 from 38.1.

The employment index improved to 28.9 from a seven-year low of 25 in May, the report showed.

A measure of prices paid for raw materials rose to 36.3 from the prior month’s reading of 29.8, while a gauge of delivery times edged up to 43.1 from 43.

The index of order backlogs increased to 37.6 from 26.3 and the inventories gauge rose to 34.2 from 31.5.

Economists watch the Chicago index for an early reading on the outlook for overall U.S. manufacturing, which makes up about 12 percent of the economy.

The Supply Management group’s nationwide manufacturing index, due tomorrow, probably rose this month to 44.6, the highest level since August 2008, from 42.8 in May, according to the survey median.

Lower Prices

Manufacturers are still hurting from the drop in prices caused by slumping sales. Micron Technology Inc., the biggest U.S. producer of computer-memory chips, last week reported a wider loss for the quarter ended June 4 after slowing electronics demand and an industry glut kept prices below the cost of production.

Some businesses may benefit from the government’s steps to revive the economy. AutoNation Inc., the largest publicly traded U.S. auto retailer, said the “cash-for-clunkers” law may boost its new-vehicle sales by 10 percent through year end. The initiative gives consumers cash to trade in old cars and light trucks for more fuel-efficient ones.

“At a minimum, it will generate a lot of traffic,” Chief Executive Officer Mike Jackson said in an interview last week.