The Chicago business barometer plunged to 47.6 in February.
According to MNI Indicators, there were sharp drops in production and new orders that caused the index’s tumble from 55.6 in January. A reading below 50 signals contraction.
Economists had estimated that the index dropped to 52.5, according to Bloomberg.
Only the supplier-deliveries component of the business barometer increased. Employment fell to the lowest level since 2009.
“If one looks beyond the gyrations seen over the past three months then trend activity has been running a little below the 50 neutral mark, highlighting continued sluggish activity levels, with manufacturers under particular pressure,” said Phillip Uglow, chief economist of MNI indicators, in the release.
“Still, given the weakness in Q4, it looks like activity should pick up during Q1.”
In a special question, 48% of respondents said that lower oil prices were boosting business due to lower freight and transportation costs. The other respondents were split on cheap oil being a drag or having no effect.
TD Securities’ Millan Mulraine wrote in a note after the report:
The broad-based decline in the key forward-looking indicators points to a further weakening in manufacturing sector momentum. Admittedly, this report is generally quite volatile with a tendency to exaggerate the associated moves in the ISM manufacturing sector counterpart.
Nevertheless, when considered in the context of the weak tone of other manufacturing PMIs we have lowered our expectation for the ISM manufacturing sector report tomorrow to 47.8 from 48.7.