Midwest Business Activity Expands in October

Business activity in the U.S. Midwest expanded in October for a sixth straight month and at a faster pace, although broadly in line with expectations, according to figures released Friday.

Activity is rebounding from the worst downturn in two decades, and the National Association of Purchasing Management-Chicago (search) barometer showed a faster pace of growth than September's surprisingly weak result.

The index rose to 55.0 from 51.2 in September. Economists had forecast the barometer at 55.5.

A reading above 50 indicates an expanding regional business sector while a reading below 50 signals contraction.

"It shows that the Chicago manufacturing sector is growing, but not at a steamy pace. It's not anything beyond expectations," said Dana Johnson, head of research at Banc One Capital Markets.

In some good news for the jobs sector, the employment component of the index rose to 53.1 from 45.3 in September.

Prices paid surged to 61.5 from 51.8 last month, and new orders expanded to 59.2 from 53.2.

"The greatest eye-opener will be the astounding increase in prices paid. This is something that the Federal Reserve (search) can no longer ignore in their formulation of interest-rate strategy," said David Littmann, chief economist with Comerica Bank in Detroit.

Because Chicago is the economic hub of the Midwest, some interpret the NAPM-Chicago report as a litmus test for Midwest manufacturing, although both manufacturing and service sector companies are included in the index.

Production rose to 62.0 from 55.8 in September. New orders jumped to 59.2 from 53.2 in September.

Inventories -- which are not used to calculate the index -- slumped to 38.1 from 52.8, and to the lowest point since April 2002.

Treasury prices held earlier gains on the data while U.S. stocks remained higher on the day.