Is the U.S. economy approaching stagflation? Chicago business activity contracted for the 19th consecutive month.

A monthly survey released on Monday showed that business activity in the Chicago area contracted again in June, reflecting weakening production and employment momentum, while price pressures continued to rise. According to the "Chicago Business Barometer" released by MNI Indicators, the index recorded 40.4 in June, slightly lower than May's 40.5, and below the economists' previous forecast of 43.0. The index has been in contraction territory below 50 since the beginning of last year, indicating that business activity has been in a state of contraction for 19 consecutive months, with June's data hitting the lowest level since January of this year. MNI stated that the slight decline in the index was mainly due to a reduction in supply delivery, output, employment, and order backlogs. However, this negative impact was almost offset by the rebound in new orders. The survey also pointed out that the proportion of surveyed companies reporting a decrease in new orders compared to May has decreased, indicating a slight improvement in market demand. However, of concern is the "prices paid" index reaching its highest level since May 2022. Data shows that in June, 70% of surveyed companies reported facing higher purchasing prices, a significant increase from 57% in May. This indicates that businesses are facing higher inflation pressures, which may pose challenges to future cost management and profit levels. Overall, despite signs of a slight improvement in new orders, business activity in the Chicago area remains in deep contraction territory, reflecting the lackluster recovery of the manufacturing and service sectors in the U.S. Midwest. The upward pressure on prices is posing a "stagflation" challenge to business operations, and market expectations regarding the Federal Reserve's room for interest rate cuts may continue to be tested.